Question

Jackson Computers sells computing equipment on credit. It uses the ageing of accounts receivable method for estimating bad debts. On 30 June 2020, the Allowance for Doubtful Debts account had a balance of $4,400 CR before any adjustments. An ageing analysis of the account receivable balance as at 30 June 2020 is provided below. The uncollectable percentages for each age group are based on past experience and are shown next to the respective aged balances. Jackson Computers is registered for goods and services tax (GST).

	Balance		% estimated uncollectable
Accounts not yet due Accounts overdue:       1–30 days 31–60 days 61–90 days     91 days and over	$148,000 32,000 26,000 35,000   24,000		0.5 2.5 11 24 42
	$265,000

REQUIRED:

1. Using the ageing of accounts receivable method, calculate the estimated bad debts expense from the above information. Show all workings. (Hint: The business is registered for GST)
2. Prepare the general journal entry to record bad / doubtful debts expense.

(Narration is not required).   

3. Show how the accounts receivable will appear on the Statement of Financial Position as at 30 June 2020.

Answer 1

Solution a:

Computation of Allowance for Uncollectible Accounts
Ageing	Accounts Receivables	% of uncollectible	Expected bad debt expense
Not yet due	$148,000.00	0.50%	$740.00
1-30 days	$32,000.00	2.50%	$800.00
31-60 days	$26,000.00	11.00%	$2,860.00
61-90 days	$35,000.00	24.00%	$8,400.00
More than 90 days	$24,000.00	42.00%	$10,080.00
Total	$265,000.00		$22,880.00

Solution b:

Journal Entries - Jackson Computers
Date	Particulars	Debit	Credit
30-Jun	Bad debts expense Dr ($22,880 - $4,400)	$18,480.00
	To Allowance for doubtful accounts		$18,480.00
	(To record bad debts expense)

Solution c:

Jackson Computers
Balance sheet (Partial)
Accounts receivables, Gross	$265,000.00
Less: Allowance for doubtful accounts	$22,880.00
Accounts receivables, net		$242,120.00