Accounting 2 DR Selim Chapter 3

Accounting II
Chapter 3
2020 - 2021
Join WhatsApp group.

Click: https://bit.ly/3d5XrJo
For Course Reservations
Facebook: https://www.facebook.com/DrSelim.Fin
Chapter 3
Accounting for Receivables
Accounts Receivables
• Accounts receivable is a current asset arise from sales to customers on credit.
• Accounts receivable should be reported on the balance sheet at their net realizable
value.
• This value is cash expected to be collected from these accounts.
• To determine the net realizable value, we should estimate the amounts expected not to
be collected from the accounts receivable due to errors of estimation or unexpected
events. These uncollectible accounts are considered losses that require reducing
accounts receivable and revenues.
‫ بحيث انها تحصل‬On Credit ‫ الشركة بتسجلها لما تبيع بضاعة أو تقدم خدمة‬Current Assets ‫ هي‬A/R ‫ال‬
.‫ بتاعها بعدين‬Cash‫ال‬
‫ اللي‬A/R ‫ وهي قيمة ال‬net realizable value ‫ بالقيمة الفعلية ليها ال‬Balance sheet ‫ بتتسجل في ال‬A/R ‫ال‬
‫ وعشان نقدر نحدد القيمة ديه الزم الشركة تكون‬..‫ بتوع الشركة‬Customers ‫الشركة متوقعة أنه تحصله من ال‬
.‫ ديه أو جزء مش هتقدر تحصله وده بيأثر بالسلب على إيرادات الشركة‬A/R ‫محددة نسبة خسارة في ال‬
Uncollectable Accounts ‫ اللي مش هتقدر تحصلها‬A/R ‫الشركة عندها طريقتين عشان تسجل بيهم ال‬
Indirect Allowance ‫ وتاني طريقة هي ال‬Direct Write-off Method ‫ أول طريقة وهي ال‬Receivables
Approach
1. The Direct Method
‫ مش بتعمل‬Uncollectable A/R ‫ الشركة بتنتظر لحد ما بالفعل تتأكد أن هيكون عندها‬Direct Method ‫في ال‬
.Uncollectable ‫ من بدري لل‬Estimation
Cr ‫ في ال‬A/R ‫ و‬Dr ‫ في ال‬Bad debt expenses ‫وفي الحالة ديه بتسجل‬
Example 1
S Co. has the following balance in accounts receivable $120,000. At the end of the period
$5,000 of these accounts are not to be collected. S uses the direct approach to record
uncollectible accounts receivable.
Required:
a. Record bad debt expenses for S company.
b. Report Accounts receivable on the balance sheet.
c. What is the effect on the income statement?
1 Adapted By Dr Selim
Solution:
a. Recording of bad debts. S will reduce the balance of accounts receivable and record
bad debt expense as follows:
Dr Cr
Bad debt expenses 5,000
Accounts Receivable 5,000
(To record uncollectible accounts using the direct approach)
b The amount of accounts receivable in the balance sheet should be equal to the amount
that can be collected as follows
$120,000 - $5,000= $115,000
c. The bad debt expense should appear on the income statement as an expense for
$5,000.
2. The indirect method or the allowance method
.Uncollectable ‫ مش هتقدر تحصله‬A/R ‫ ان جزء من‬Estimation ‫ الشركة بتعمل‬indirect Method ‫في ال‬
Cr ‫ في ال‬Allowance for Doubtful Accounts ‫ و‬Dr ‫ في ال‬Bad debt expenses ‫وفي الحالة ديه بتسجل‬
Example 2
L Company has credit sales of $250,000. Collected accounts receivable during the year were
$200,000 Management estimates uncollectible accounts to be $5,000.
Required:
a. Record credit sales for the period.
b. Record collection of accounts receivable during the period.
c. Prepare the adjusting entry to record expected uncollectible accounts receivable.
d. Show the balances related to accounts receivable on the balance sheet at the end of the
year.
Solution:
a. The journal entry to record credit sales for the period will be Accounts Receivable
Dr Cr
Sales Revenues 250,000
b. To record the collection of accounts receivable, the| following journal entry is

prepared
Dr Cr
Cash 200,000
c. At the end of the year an adjusting entry is prepared to record the expected
uncollectible accounts receivable as follows
Dr Cr
Allowance for doubtful Accounts 5,000
d. The following balances related to accounts receivable are shown on the balance sheet
at the end of the year
Accounts receivable $50,000
(-) Allowance for doubtful Accounts (5.000)
Accounts receivable at the end of the year $45,000
Methods for estimating uncollectible accounts expense (Bad Debt Expense)

Bad ‫ أو ال‬uncollectible accounts receivable ‫ لل‬Estimation ‫الشركة متاح ليها طريقتين عشان تعمل‬
Debt Expenses
‫ وديه بتستخدمها الشركة لما يكون في عالقة أو نسبة شبه ثابتة‬percentage of net sales ‫أول طريقة وهي ال‬
‫ والطريقة ديه بتمثل‬.Sales‫ اللي حصلت في فترات محاسبية سابقة و المبيعات ال‬Bad Debt Expenses ‫مابين ال‬
Income Statement View of point
‫ بناء على‬uncollectible ‫ الشركة بتحدد فيها ال‬Accounts Receivable Aging Method ‫تاني طريقة وهي ال‬
‫ كل ما يكون تاريخ االستحقاق عدي‬..Due Date ‫ أو تاريخ االستحقاق‬Accounts Receivable ‫ بتاع كل‬Age ‫ال‬
Balance ‫ والطريقة ديه بتمثل‬.‫ بتاعتها‬A/R ‫عليه فترة كبيرة كل ما تزيد احتمالية الشركة أنها ماتعرفش تحصل ال‬
Sheet view of point
‫ والمبلغ ده بنسميه ال‬$2,228 ‫ اجمالي اللي الشركة متوقع انها متقدرش تحصله هو‬.. ‫في الصورة اللي قدامك ديه‬
Bad Debt ‫ وبالتالي قيمة ال‬Allowance for Doubtful Accounts ‫ في حساب ال‬Required Balance
Allowance ‫ الفعلي في ال‬Existing Balance‫ وال‬Required Balance ‫ بتكون الفرق مابين ال‬Expenses
Account
Example 3
The following information relates to Accounts receivable and sales on December 31, 2015
before adjustment.
• Net credit sales=$250,000
• Accounts Receivable=100,000
• Allowance for doubtful accounts=1,600
Required:
a. Compute bad debts for the year under each of the following two independent
situations:
1. Analysis of Accounts receivable indicated that total of $3,500 of the accounts receivable
are expected not to be collected.
2. Bad debt expense is expected to be 1% of credit sales.
b. Record bad debts expense under each situation.
c. If $2,500 of accounts receivable are written-off during 2016, prepare the necessary
journal entry to record this transaction.
Solution:
a. Computing bad debt expenses:
Allowance for doubtful accounts
Dr Cr
1,600
1,900
$3,500
Accounts receivable indicated that $3,500 of accounts receivables are expected not to be
collected, the balance of allowance needed should be $3,500. The current balance is $1,600
so, we need to increase the balance by $1,900 to be able to meet the new debts. Accordingly,
bad debt expense for this period should be $1,900.
2. The allowance for doubtful accounts should be increased by (1% of $250,00)= $2,500
b. To record bad debt expense under the first situation
Dr Cr
To record bad debt expense under the second situation Bad debt expenses
Dr Cr
c. Recording actual bad debts of $2,500

Dr Cr
Collection of previously written-off accounts receivable
Bad Debt ‫ على أساس انها‬Customer ‫ بتاعتها من علي ال‬A/R ‫أحيانا بعد ما الشركة بتخصم جزء من ال‬
A/R ‫ بيجي و يدفع ال‬Customer ‫ ال‬... ‫ مش هيقدر يدفعها وعدت فترة استحقاقها‬Customer‫ و ال‬Expenses
‫ عشان‬Allowance ‫ في ال‬Record‫ في الحالة ديه الشركة بتعكس ال‬..Write-off ‫اللي عليه بعد ما الشركة عملتلهم‬
.CR ‫ في ال‬A/R ‫ و ال‬Dr ‫ في ال‬Cash ‫ بتسجل‬Customer ‫ ولما تحصل الفلوس من ال‬Write off ‫تلغي ال‬
Example 4
Assume that the company in the previous example collected $1,000 from the accounts
receivable previously written-off
Required: Prepare the journal entries for above events:
Solution:
Dr Cr
Cash 1,000
Accounts receivable 1,000
Example 5 (A Comprehensive example on Accounts Receivable)
The following data were obtained from the accounting records of N Co.:
• Net credit Sales= $250,000
• Accounts receivable = $90,000
• Allowance for doubtful accounts = $600(Debit balance)
Required:
ą. Assume that the company estimates that 1% of credit sales become uncollectible
1. Prepare the necessary adjusting entry.
2. Determine the total of Allowance for doubtful accounts balance after this transaction.
b. Assume that the company uses the Aging method to estimate bad debt expense, and
the analysis of the accounts receivable indicates that total of $4,500 are estimated to be
uncollectible
1. Prepare the necessary adjusting entry at the end of the year.
2. Determine the balance for Allowance for doubtful accounts after this transaction.
Solution:
a. Using percentage of net sales method (income statement method):
Estimated uncollectible accounts expense $250,000 x 1% = $2,500.
1. The amount should be recorded as an increase in the balance of allowance for doubtful
accounts regards of the previous balance as follows:
Dr Cr

Dr Cr
600 2,500
$1,900
2. The balances of the allowance for doubtful accounts will be: $2,500 (-) $600 =$1,900
b. Using aging method:

Dr Cr
600 5,100
$4,500
• Estimated uncollectible accounts receivable= $4,500,
• but we had previous balance of ($600). So, the necessary adjusting entry would be
$4,500 (+) $600 = $5,100
1. The journal entry:
Dr Cr
3. The balance of the allowance for doubtful accounts = 5,100-600= $4,500.

Dr Cr
Bad debt expenses XXX
Accounts Receivable XXX
(To record uncollectible accounts using the direct approach)
Cash XXX
(To record the collection of accounts receivable)
Bad debt expenses XXX
Allowance for doubtful Accounts XXX
(To record the expected uncollectible accounts receivable)
(To record the write-off Accounts Receivable)
Cash XXX
Accounts receivable XXX
(Collection of previously written-off accounts receivable)
Bad Debt Expense ‫ و ال‬ADA ‫هـــــام …القوانين الخاصة بحساب ال‬
Indirect Method ‫في الحالتين المختلفتين لل‬
Income Statement Method Balance Sheet Method

(Percentage of AR method)
(percentage of sales method)
(Aging method)
Bad debt expense = ADA Ending balance =

Net credit Sales x Rate Account Receivables x Rate
Cr‫ في ال‬ADA Beg. Balance ‫لو ال‬ Cr‫ في ال‬ADA Beg. Balance ‫لو ال‬
ADA Ending balance = Bad debt expense =
Bad debt Expense ADA Ending Balance
+ ADA Beg balance Cr - ADA Beg balance Cr
+ Collection of pre.written off AR - Collection of pre.written off AR
- Written off AR + Written off AR
Dr‫ في ال‬ADA Beg. Balance ‫لو ال‬ Dr‫ في ال‬ADA Beg. Balance ‫لو ال‬
ADA Ending balance = Bad debt expense =
Bad debt Expense ADA Ending Balance
- ADA Beg balance Dr + ADA Beg balance Dr
+ Collection of pre.written off AR - Collection of pre.written off AR
- Written off AR + Written off AR
Notes Receivables
• Notes receivables are receivables supported by a formal written promise to pay a

certain amount of money at a specific future date.
• The person who signs the note is called the maker of the note. This maker accepts the
payment of amount due to a certain person called the payee.
• The note normally contains interest to account for the change of the value of money
over time. Even if the note does not contain clear interest rate, it includes interest as
part of its due value.
• Notes receivable can be easily converted into cash by selling them or using them as
collaterals to borrow money from banks or other creditors.
Accounting for Notes Receivables

a. To record notes receivable for credit sales.
Dr Cr
Notes Receivable XXX
Sales Revenue XXX
b. To record notes receivable for settlement of account receivable.

Dr Cr
c. On maturity or due date, we are going to have one of two situations:

1. The maker honors the note and pays the amount due plus, related interest. The seller will
record the following journal entry to record collection of the note and related interest.:
Dr Cr
Cash XXX
Interest Revenue XXX
2. The maker dishonors the note and refuses to pay the amount due and related
interest. The seller will record the following journal entry:
Dr Cr
Accounts receivable XXX
Interest Revenue XXX
The note is charged back to accounts receivable to remove the note from notes receivable
account and to remind the company to continue collection efforts from the maker of both the
principal and related interest.
4. When the company collects the accounts receivable from the maker, the following journal
entry is made by the seller, to record collection of the accounts receivable from
dishonored note:
Dr Cr
Cash XXX
Example 6
Assume that on January 1, 2016 N Company sold merchandise to L Company for $6,000 and
L signed a three-months note for the amount due plus 10% annual interest rate.
Required:
a. Record the receipt of the note by N Company.
b. Record the collection of note and related interest. On April 1, 2016.
c. If the maker of the note fails to pay the amount due, Record dishonoring the note and
related interest on April 1, 2016.
d. If the maker pays the amounts due later. Record the payments in the accounts records of N
Company.
Solution:
a. Recording the receipt of the note by N Company on Jan.1, 2016.
Dr Cr
Notes Receivable 6,000
Sales Revenue 6,000
b. Recording the collection of the note and related interest.

Dr Cr
Cash 6,150
Interest Revenue ($6000 x 10% x 3/12) 150
c. Record dishonor of the note

Dr Cr
Interest Revenue 150
d. Payment of the amount due later.
Dr Cr
Cash 6,150
‫ عشان التأخر عن موعد االستحقاق أو ممكن‬Maker ‫ من ال‬Higher rate of interest ‫ ممكن ياخد‬Seller ‫ال‬
Rate ‫يوافق انه يسدد بنفس ال‬
Example 7
Using data from previous example,
a. Assume that N charges 15% interest for late payment and L paid the amount due at July 1,
2016. Record the payment of note and related interest.
b. Assume that on April 1, 2016 N accepted a new note from L Company for the whole
amount due but with 12% interest rate. Record the acceptance and collection of the new note.
Solution:
a. If N charges 15% for late payment, the amount due from L is computed as follows:
The amount of the original note $6,000
Interest till April 1 150
Interest from April 1 to July 1 at 15% (6,150 x 15% x 3/12) 231
Total $6.381
The journal entry made by N to record this transaction would be:
Dr Cr
Cash 6,381
Interest Revenue 231
b. If L accepts to sign a new note the new note will be for the amount due of $6,150 as
follows:
Dr Cr
The interest due on the new note for three months at 12%, will be:
So, the total amount due on July 1 will be 6,335 that should be recorded as follows:
Dr Cr
Cash 6,335
Interest Revenue ($6,150 x 12% x 3/12) 185
1. D Company's account balances at December 31 for Accounts Receivable and the
related Allowance for Doubtful Accounts are $600,000 and $13,000,
respectively. From an analysis of accounts receivable, it is estimated that
$28,000 of the December 31 receivables will be uncollectible. After adjustment
for the above facts, the net realizable value of accounts receivable would be
a) $600,000 b) $587,000
c) $559,000 d) $572,000
$600,000 - $28,000 = $572,000
2. Which of the following methods of accounting to uncollectible accounts does not
properly match costs with revenues?
a) Percentage of sales b) Percentage of receivables
c) Direct write-off d) Aging schedule
3. Certain information relative to the 2016 operations of B Company follows:
Accounts receivable, January 1, 2016: $24,000
Accounts receivable collected during 2016: $46,000
Cash sales during 2016: $12,000
Inventory, January 1, 2016: $18,000
Inventory, December 31, 2016: $16,500
Purchases of inventory during 2016: $40,000
Gross profit on sales: $13,500
What is B's accounts receivable balance at December 31, 2016?
a) $18,000 b) $21,000
c) $24,000 d) $33,000
Accounts receivable balance = Credit Sales + Beg AR – AR Collected
• Cost of goods sold = Beg. Inventory + Purchases – Ending Inventory= $18,000 +
$40,000 - $16,500 = 41,500
• Sales Revenue = Cost of goods sold + Gross profit on sales = 41,500 + 13,500 =
55,000
• Credit Sales during 2016= Sales revenue - cash sales = 55,000 - $12,000 = 43,000
• Accounts receivable balance at December 31, 2016 = Credit Sales + Beg AR – AR
Collected = 43,000 + 24,000 - 46,000 = 21,000
4. W Corp. has outstanding accounts receivable totaling $6.5 million as of
December 31 and sales on credit during the year of $24 million. There is also a
credit balance of $12,000 in the allowance for doubtful accounts. If the company
estimates that 8% of its outstanding receivables will be uncollectible, what will
be the amount of bad debt expense recognized for the year?
a) $532,000 b) $520,000
c) $1,920,000 d) $508,000
Estimated uncollectable AR = 6,500,000 x 8% = 520,000
The amount of bad debt expense recognized for the year = 520,000 – 12,000 =
508,000
5. W Corp. has outstanding accounts receivable totaling $3 million as of December
31 and sales on credit during the year of $15 million. There is also a debit
balance of $12,000 in the allowance for doubtful accounts. If the company
estimates that 8% of its outstanding receivables will be uncollectible, what will
be the balance in the allowance for doubtful accounts after the year-end
adjustment to record bad debt expense?
a) $1,200,000 b) $228,000
c) $240,000 d) $252,000
Estimated uncollectable AR = 3,000,000 x 8% = 240,000
6. At the close of its first year of operations, December 31, 2015, M Company had
accounts receivable of $540,000, after deducting the related allowance for
doubtful accounts. During 2015, the company had charges to bad debt expense
of $90,000 and wrote-off, as uncollectible, accounts receivable of $40,000. What
should the company report on its balance sheet at December 31, 2015, as
accounts receivable before the allowance for doubtful accounts?
a) $670,000 b) $590,000
c) $490,000 d) $440,000
Dr Cr
To record the expected Bad debt expenses 90,000
uncollectible accounts Allowance for doubtful Accounts 90,000
receivable
To record the write-off Allowance for doubtful Accounts 40,000
Accounts Receivable Accounts Receivable 40,000
Dr Cr
540,000 40,000
90,000
590,000
The computation of the accounts receivable before the allowance is shown below:
= Beginning account receivable balance + bad debt expense - uncollectible
accounts receivable
= $540,000 + $90,000 - $40,000 = $590,000
A bad-debt expense anticipates future losses, while a write-off is a bookkeeping that
simply acknowledges that a loss has occurred in Accounts Receivable.
7. Before year-end adjusting entries, D Company's account balances at December
31, 2010, for accounts receivable and the related allowance for uncollectible
accounts were $600,000 and $45,000, respectively. An aging of accounts
receivable indicated that $62,500 of the December 31 receivables are expected to
be uncollectible. The net realizable value of accounts receivable after
adjustment is
a) $582,500 b) $537,500
c) $492,500 d) $555,000
Allowance for Doubtful Accounts
Dr Cr
45,000
17,000
62,500
The computation of the cash realizable value of accounts receivable is shown below:
= Ending balance of accounts receivable - aging of accounts receivable
= $600,000 - $62,500 = $537,500
8. During the year; K Company made an entry to write-off a $4,000. uncollectible
account. Before this entry was made, the balance in accounts receivable was
$50,000 and the balance in the allowance account was $4,500. The net realizable
value of accounts receivable after the write-off entry was
a) $50,000 b) $49,500
c) $41,500 d) $45,500
Dr Cr
To record the write-off Allowance for doubtful Accounts 4000
Accounts Receivable Accounts Receivable 4000
After Write of:
Accounts Receivable = 50,000 – 4,000 = 46,000
ADA = 4,500 – 4,000 = 500
The net realizable value of accounts receivable = $46,000 - $500= $45,500
9. The following information is available for M Company:
Allowance for doubtful accounts at Dec 31, 2009: $8,000
Credit sales during 2010: 400,000
Accounts receivable deemed worthless and written off during 2010: 9,000
As a result of a review and aging of accounts receivable in early January 2011,
however, it has been determined that an allowance for doubtful accounts of $5,500
is needed at December 31, 2010. What amount should M record as "bad debt
expense" for the year ended December 31, 2010?
a) $4,500 b) $5,500
c) $6,500 d) $13,500
Dr Cr
Write off 2010 9000 Beg Balance Dec31,2009 8,000
Adjustment 6,500
Ending Balance Dec31,2010 5,500
Bad debt Expense = Ending balance ADA – Beg Balance ADA + Write off
Bad debt Expense = 5,500 – 8,000 + 9,000 = 6,500
Use the following information for questions 10 and 11.
A trial balance before adjustments included the following:
10. If the estimate of uncollectible accounts is made by taking 2% of net sales, the
amount of the adjustment Is:
a) $6,700 b) $8,220
c) $8,500 d) $9,740
2%x(425000-14000)=8,220
11. If the estimate of uncollectible accounts is made by taking 10% of gross account
receivables, the amount of the adjustment is
a) $3,540 b) $4,300
c) $4,224 d) $5,060
Dr Cr
Beg Balance 760
Bad debt expense Adjustment 3,540
Ending Balance 43000x10% 4,300
12. L Company has the following account balances at year-end:
Accounts receivable: $60,000
Allowance for doubtful accounts: 3,600
Sales discounts: 2,400
L should report accounts receivable at a net amount of
a) $54,000 b) $56,400
c) $57,600 d) $60,000
Net realizable value = AR – ADA = $60,000 – $3,600 = $56,400.
13. B Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
$12,000. During 2010, it wrote off $8,640 of accounts and collected $2,520 on
accounts previously written-off. The balance in Accounts Receivable was
$240,000 at 1/1 and $288,000 at 12/31. At 12/31/10, B estimates that 5% of
accounts receivable will prove to be uncollectible. What should B report as its
Allowance for Doubtful Accounts at 12/31/10?
a) $5,760 b) $5,880
c) $8,280 d) $14,400
$288,000 × 5% = $14,400.
14. B Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
accounts previously written-off. The balance in Accounts Receivable was
$240,000 at 1/1 and $288,000 at 12/31. At 12/31/10, B estimates that 5% of
accounts receivable will prove to be uncollectible. What the amount of the
adjustment of bad debt expense?
e) $5,760 f) $5,880
g) $8,520 h) $14,400
Dr Cr
Write off $8,640 Beg Balance 12,000
Collection of previously written-off 2,520
Bad debt expense Adjustment 8,520
Ending Balance $288,000 × 5% $14,400
Bad debt expense Aging Method = Ending Balance of ADA – Beg Balance of ADA -
Collection of previously written off + Write off = 14,400 – 12,000 – 2,520 + 8,640 =
8,520
15. S Company has the following account balances at year-end:
Accounts receivable: $80,000
Allowance for doubtful accounts: 4,800
Sales discounts: 3,200
S should report accounts receivable at a net amount of
a) $72,000 b) $75,200
c) $76,800 d) $80,000
$80,000 – $4,800 = $75,200.
16. V Corporation had a 1/1/16 balance in the Allowance for Doubtful Accounts of
$20,000. During 2016, it wrote-off $14,400 of accounts and collected $4,200 on
accounts previously written off. The balance in Accounts Receivable was
$400,000 at 1/1 and $480,000 at 12/31. At 12/31/16, V estimates that 5% of
accounts receivable will prove to be uncollectible. What is Bad Debt Expense for
2016?
a) $4,000 b) $14,200
c) $18,400 d) $24,000
Dr Cr
Write off 2016 14,400 Beg Balance Jan1,2016 20,000
Previously written off collection 4,200
Bad debt expenses Adjustment 14,200
Ending Balance Dec31,2016
5% x 480,000 24000
$480,000 × .05 – [$20,000 – ($14,400 – $4,200)] = $14,200.

The bad debt expense account includes all of Estimated uncollectable AR, ADA, and
Written off AR.
17. M Corporation had a 1/1/15 balance in the Allowance for Doubtful Accounts of
$300,000 at 1/1 and $360,000 at 12/31. At 12/31/15, M estimates that 5% of
accounts receivable will prove to be uncollectible. What should M report as. its
Allowance for Doubtful Accounts at 12/31/15?
a) $7,200 b) $7,350
c) $10,350 d) $18,000
$360,000 × .05 = $18,000.
18. E Roads sold $50,000 of goods and accepted the customer's $50,000, 10%, 1-
year note receivable in exchange. Assuming 10% approximates the market rate
of return, what would be the debit in this journal entry to record the sale?
a) No journal entry until cash is b) Debit Notes Receivable for $50,000.
collected.
c) Debit Accounts Receivable for d) Debit Notes Receivable for $45,000.
$50,000.
19. S Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
$10,000. During 2010, it wrote-off $7,200 of accounts and collected $2,100 on
$200,000 at 1/1 and $240,000 at 12/31. At 12/31/10, S estimates that 5% of
accounts receivable will prove to be uncollectible. What is Bad Debt Expense for
2010?
a) 2,000 b) $7,100
c) $9,200 d) $12,000
Write off 2010 7,200 Beg Balance Jan1,2010 10,000

Previously written off collection 2,100
Bad debt expenses Adjustment 7,100
Ending Balance Dec31,2016 12,000
5% x 240,000
($240,000 × .05) – [$10,000 – ($7,200 – $2,100)] = $7,100.
Problem 1
A trial balance before adjustment included the following:
Debit Credit
Sales $340,000
Sales returns and allowance $8,000
Allowance for doubtful accounts 730
Required:
Prepare journal entries assuming that the estimate of uncollectible is determined by taking:
a. 5% of gross accounts receivable.
b. 1% of net sales.
Solution:
a.
Dr Cr
Beg Balance 730
Ending Balance 5% x 80,000 4,000
Dr Cr
b.
Net Sales = 340,000 -8,000=$332,000
Dr Cr
Beg Balance 730
Bad debt expenses 1% x $332,000 3,320
Ending Balance 4,050
Dr Cr
Problem 2
The trial balance before adjustment of R Company reports the following balances:
Debit Credit
Sales (All on credit) $750,000
Allowance for doubtful accounts 2,500
Required
a. Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated
to be:
1. 6% of gross accounts receivable.
2. 1% of net sales.
b. Assume that all the information above is the same, except that the Allowance for Doubtful
Accounts has a debit balance of $2,500 instead of a credit balance. How will this difference
affect the journal entries in part(a)?
Solution:
a.
1)
Dr Cr
Beg Balance 2,500
Dr Cr
2) Net Sales = 750,000 -40,000=$710,000

Dr Cr
Beg Balance 2,500
Dr Cr
b.
1)
Dr Cr
Beg Balance 2,500
Dr Cr
2)
Net Sales = 750,000 -40,000=$710,000

Dr Cr
Beg Balance 2,500
Dr Cr
Problem 3
Cairo Co., credit sales during 2004 were $800,000.On December 31,2004 the Accounts
receivable balance was $260,000. Management estimated that 2% of credit sales would
probably be uncollectible. The company wrote-off accounts receivable worth $9,000 during
2004.
On December 31,2005 the unadjusted trial balance showed the following items:
Debit Credit
Credit Sales 300,000
The company decided to adopt the balance sheet method for estimating un-collectibles and
estimated that $30,000 of the accounts receivable may eventually be un-collectible.
Required:
a. Prepare the necessary journal entries to account for uncollectible receivables during 2004
and 2005.
b. Show balances related to A/R on balance sheet of December 31,2005.
Solution:
a.
Year Accounts & Explanation Dr Cr

2004 Bad debt expenses 2% x 800,000 16,000
(To record uncollectible A/R Net sales Method)
(To record written off A/R)
2005 Bad debt expenses 30,000 - 7,000 23,000
(To record uncollectible A/R Balance sheet Method)
b.
Dr Cr
Beg Balance 7,000
Balance sheet
Assets Labilities & O.E
Accounts Receivables 600,000
Allowance for doubtful Accounts (30,000)
Net Account Receivables 570,000
Problem 4
Z Co., credit sales during 2002 were $1,800,000.On December 31, 2002 the accounts
receivable balance was $260,000.Management estimated that 2% of all credit
sales would probably be uncollectible. The company wrote off accounts worth $9,000 during
2002.
On December 31,2003 the unadjusted trial balance revealed the following:
Debit Credit
Credit Sales $2,100,000
Accounts Receivables $800,000
Allowance for uncollectible accounts 27,000
The company decided to adopt the aging method for estimating uncollectible accounts and
estimated that $57,000 of the accounts receivable may eventually be uncollectible.
Required:
a. Prepare the necessary journal entries to account for uncollectible receivables during 2002
and 2003.
b. Show balances related to Accounts receivables on balance sheet of December 31,2003.
a.

2002 Bad debt expenses 2% x 1,800,000 36,000
(To record uncollectible A/R Net sales Method)
(To record written off A/R)
2003 Bad debt expenses 57,000 - 27,000 30,000
b.
Dr Cr
Beg Balance 27,000
Balance sheet
Problem 5
The following information relates to Accounts Receivable of Y Co. on January 1, 2015:
Accounts receivables $300,000
The following transactions occurred during 2015:

1.Cash sales $200,000
2.Credit sales 350,000
3.Written-off A/R 15,000
4.Recovered bad debts 3,000
5.Collected A/R 400,000
Analysis of Accounts receivable on December 31,20015 indicated that $25,000 of these
accounts is expected not to be collected.
Required:
a. Prepare journal entries to record the above transactions.
b. Prepare the necessary adjusting entry to record bed debt expense for 2015.
c. Show balances related to Accounts receivable on the balance sheet on December 31,2015.
Solution:
a.

1 Cash 200,000
(Cash Sales)
2 Accounts Receivables 350,000
(Credit Sales)
3 Allowance for Doubtful Accounts 15,000
(Written-off A/R)
4 Accounts Receivables 3,000
Allowance for Doubtful Accounts 3,000
Cash 3,000
(Recovered bad debts)
5 Cash 400,000
(Collected A/R)
b.
Accounts & Explanation Dr Cr
Bad debt expenses 25,000 - 10,000 15,000
C.
Dr Cr
Beg Balance 300,000 Written-off A/R 15,000
Credit Sales 350,000 Recovered bad debts 3,000
Recovered bad debts 3,000 Collected A/R 400,000
Total 658,000 418,000

Balance 240,000
Balance sheet
Problem 6
At the end of the year the unadjusted trial balance shows the following accounts:
Debit Credit
Sales (80% credit sales) $300,000
Accounts receivables $200,000
Required :
a. If the Company uses the balance sheet approach, and analysis of A/R indicates expected
uncollectible accounts will be $24,000,record bad debt expense for the year.
b. If the income statement approach is used, and the uncollectible A/R is estimated as 1% of
credit sales, record bad debt expense for the year.
c. Show balance sheet under each approach.
Solution:
a.
Dr Cr
Beg Balance 4,300
Dr Cr
b.
Net credit sales = 80% x 300,000= $240,000
Dr Cr
Beg Balance 4,300
Dr Cr
c.
1) Balance sheet under first approach
Balance sheet
2) Balance sheet under second approach
Balance sheet
Problem 7
A trial balance before adjustment included the following:
Debit Credit
Sales $360,000
Accounts receivable $90,000
Allowance for doubtful accounts 730
Required:
a. Prepare the journal entries assuming that the estimate of uncollectible accounts is
determined by taking:
1. 6% of gross accounts receivable
2. 2% of net sales
b. What would be your answer if allowance for doubtful accounts has a debit balance of
$730?
Solution:
a.
1)
Dr Cr
Beg Balance 730
Dr Cr
2) Net sales = 360,000 – 8,000 = 352,000

Dr Cr
Beg Balance 730
Bad debt expenses 2% x 352,000 7,040
Dr Cr
b.
1)
Dr Cr
Beg Balance 730
Dr Cr
2) Net sales = 360,000 – 8,000 = 352,000

Dr Cr
Beg Balance 730
Bad debt expenses 2% x 352,000 7,040
Dr Cr

Accounting 2 DR Selim Chapter 3

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accounting 2 DR Selim Chapter 3

Uploaded by

Copyright:

Available Formats

Accounting II

Join WhatsApp group.

For Course Reservations

1. The Direct Method

2. The indirect method or the allowance method

b. To record the collection of accounts receivable, the| following journal entry is

Methods for estimating uncollectible accounts expense (Bad Debt Expense)

c. Recording actual bad debts of $2,500

Collection of previously written-off accounts receivable

Allowance for doubtful accounts

Allowance for doubtful accounts

3. The balance of the allowance for doubtful accounts = 5,100-600= $4,500.

(Collection of previously written-off accounts receivable)

Income Statement Method Balance Sheet Method

Bad debt expense = ADA Ending balance =

• Notes receivables are receivables supported by a formal written promise to pay a

Accounting for Notes Receivables

b. To record notes receivable for settlement of account receivable.

c. On maturity or due date, we are going to have one of two situations:

b. Recording the collection of the note and related interest.

c. Record dishonor of the note

$480,000 × .05 – [$20,000 – ($14,400 – $4,200)] = $14,200.

Write off 2010 7,200 Beg Balance Jan1,2010 10,000

($240,000 × .05) – [$10,000 – ($7,200 – $2,100)] = $7,100.

2) Net Sales = 750,000 -40,000=$710,000

Allowance for doubtful accounts

Net Sales = 750,000 -40,000=$710,000

Year Accounts & Explanation Dr Cr

Year Accounts & Explanation Dr Cr

The following transactions occurred during 2015:

Year Accounts & Explanation Dr Cr

Total 658,000 418,000

2) Net sales = 360,000 – 8,000 = 352,000

2) Net sales = 360,000 – 8,000 = 352,000

You might also like