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

a.

Accounts receivable	Amount	%	Estimated Uncollectibles
not yet due	1,48,000	0.5%	740
1-30 days	32,000	2.5%	800
31-60 days	26,000	11.0%	2860
61-90 days	35,000	24.0%	8400
91 days and over	24,000	42.0%	10080
Total estimated bad debts expense			22880

b.

Accounts Title	Debit	Credit
Bad Debt Expense (22880-4400)	18480
Allowance for Doubtful debts accounts		18480

c.

Balance Sheet (Partial)
Current Assets:
Accounts receivable (gross)	$2,65,000
Less: Allowance for Doubtful debt Account	$22,880
Accounts receivable, Net		$2,42,120