Question

The financial year for Peter Jones runs from 1 July to 30 June each year. The following transactions occurred during the 2019 and 2020 financial year. Jones uses the allowance method to measure bad debts. Note 1: Ignore GST. Note 2: Narrations are not required Dates Transactions Financial year ending 30 June 2019 June 30 Jones expects the bad debts expense to be 3% of the credit sales figure of $150,000. (ENTRY REQUIRED) June 30 The bad debts expense account was closed off to Income Summary account at 30 June. ( NO ENTRY REQUIRED) Financial year ending 30 June 2020 July 3 Most of the credit sales noted above were collected. (NO ENTRY REQUIRED) July 5 After repeated attempts Jones finally decides that the business cannot collect the outstanding balance of $2,000 from one of its accounts receivable customer’s (Nelson). Jones therefore decides to write-off the receivable by $2,000. (ENTRY REQUIRED) July 23 Received $2,000 from Nelson, along with a letter stating his apology for paying late. Jones reinstated Nelson’s account in full and recorded the cash collection. (ENTRY REQUIRED) July 31 Jones now decides to increase the bad debts expense by a further 1%. The further 1% is based on the previous financial years credit sales figure of $150,000. (ENTRY REQUIRED) Required: (a) Where it states, “entry required”, record the transaction in the general journal of Peter Jones. Date Account Debit Credit Question 4 continued over next page Question 4 continued Date Account Debit Credit Date Account Debit Credit Date Account Debit Credit (b) Post the relevant transactions to the Allowance for Doubtful Debts “T” Ledger account and balance the account. Allowance for Doubtful Debts Account Date Reference Amount Date Reference Amount

Answer 1

Account Receivable