Question

ABC Ltd has accounts receivable of $99 600 at 30 April, 2019. An analysis of the accounts shows these amounts as follows:

Month of sale		Balance of Accounts Receivable
April, 2019		$50 000
March, 2019		43 000
February, 2019		1 200
January, 2019		5 100
December and November, 2018		300
		99 600

Credit terms are 2/7, n/30. At 30 April, 2019, there is a $2000 credit balance in Allowance for Doubtful Debts before adjustment. The entity uses the ageing of accounts receivable basis for estimating uncollectable accounts. Estimates of bad debts are as follows:

Age of accounts			Estimated percentage uncollectable
Current			2%
1-30 days past due			5%
31-90 days past due			40%
over 90 days			50%

Required:

a)     Determine the total estimated uncollectable (1 mark)

b)     Prepare the adjusting entry at 30 April, 2019 to record bad debts expense (1 mark)

c)     In May, 2019, a cheque for $1500 is received from the customer whose account was written off as uncollectable in February. Prepare the journal entry.

(Both account names and figures should be correct in order to award marks.

Answer 1

a) Determination of total estimated uncollectables:

Particulars Calculations($) Amounts($)

April 2019 50000*2% 1000

March 2019 43000*5% 2150

February 2019 1200*40% 480

January 2019 5100*40% 2040

December n November 2018 300*50% 150

TOTAL 5820

b) Adjustment entry on 30 april, 2019 to record bad debt expenses:

on 30/4/19 Bad debts expenses $3820

To allowance for bad debts $ 3820 (5820-2000)

( being bad expenses are recorded after deducting opening allowance)

c) Journal entry for recovery from written off

may/2019 Accounts receivables   $1500

To Allowance for bad debts $1500

( being reinstate of the account that was written off by reversing the write-off entry)

May 2019 Bank $1500

To Accounts receivables $1500

(being cheque received from the customer against the receivable)