Question

Pots-R-Us deals in ceramic pots and figurines. All sales are conducted on a credit basis and no cash discounts are given. Ignore GST. Ignore all journal narrations.

The following information was extracted from the accounting records at 30 June 2019:

Sales                                        $552,000

Sales returns and allowances     37,900

Cash collected                         319,120

Debts to be written off                 4,022

Required

1a)       Assume that Pots-R-Us uses the direct write-off method of accounting for bad debts. Prepare the general journal entry required to write off the bad debt. Record the journal entry in the space below.

Date	Account	Debit	Credit

b)         What amount would be shown for accounts receivable in the balance sheet at 30 June 2019? (Show workings)

­­­­­­­­­­­­­­­­­

2)         Pots-R-Us uses the allowance method of accounting for bad debts and the Allowance for Doubtful Debts account had a credit balance of $2,645 at 1 July 2018. One percent of net credit sales is estimated to be uncollectable for the year ended 30 June 2019.

1. Prepare the adjusting entry in the space provided below to record the estimated uncollectible amount.

Date	Account	Debit	Credit

2. Prepare the Allowance for Doubtful Debts account

3. Show how Accounts Receivable and Allowance for Doubtful Debts would be reported in the balance sheet at 30 June 2019.

3.         Assume that Pots-R-Us completed an age analysis of its accounts receivable and determined that an Allowance for Doubtful Debts of $ 10,320 was needed in order to report accounts receivable at their estimated collectable amount in the balance sheet.   

1. Prepare the adjusting entry to record bad debts expense assuming that the Allowance for Doubtful Debts account had a credit balance of $2,645 at 1 July 2018.

Date	Account	Debit	Credit

2. Show how Accounts Receivable and Allowance for Doubtful Debts would appear in the balance sheet at 30 June 2019.

3. Explain the treatment of GST and accounting for bad debts if:

1. You were required to write off the balance of a customer’s account and your business was registered for GST
2. You had to estimate bad debts expense using the allowance method for the year end accounts and your business was registered for GST.

Answer 1

Solution:

1a.

Journal Entries
Direct Write-Off Method
Bad Debt Expense	4022
Accounts Receivable		4022

1b.

Accounts Receivable - Net

190958

Workings:

Sales	552000
Less: Sales Returns	37900
Net Sales	514100
Less: Cash Collected	319120
Credit Sales	194980
Less: Bad Debt Expense	4022
Accounts Receivable - Net	190958

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