Exercise 12.

1 Bad debts — direct write-off and allowance methods

(excluding GST)

Centenary Ceramics deals in ceramic pots and figurines. All sales are conducted on a credit
basis and no cash discounts are given. Ignore GST. The following information was extracted
from the accounting records at 30 June 2015:

Sales $552 000

Sales returns and allowances 37 900
Cash collected 319 120
Debts to be written off 4 022

Required
A. Assume that Centenary Ceramics uses the direct write-off method of accounting for bad
debts:
1. Show the general journal entry required to write-off the bad debts.
2. What amount would be shown for bad debts expense in the income statement at 30
June 2015?
3. What amount would be shown for accounts receivable in the balance sheet at 30
June 2015?
B. Assume that Centenary Ceramics uses the allowance method of accounting for bad
debts and the Allowance for Doubtful Debts account had a credit balance of $2645 at 1
July 2014. Also assume that an allowance of 1% of net credit sales is required at 30
June 2015 (ignore GST):
1. Show the general journal entries required to write off the bad debts and bring in the
required allowance for doubtful debts.
2. What amount would be shown for bad debts expense in the income statement at 30
June 2015?
3. What amount would be shown for accounts receivable in the balance sheet at 30
June 2015?

A.
1.

2.

3.
B.
1.

2.

3.

Exercise 12.2 Bad debts — direct write-off and allowance methods

(including GST)

Refer to the information in exercise 18.1. Complete requirements A and B but this time include
the impact of a 10% GST.

If GST is introduced the information extracted from the accounting records would be:

Sales $552 000

Sales Returns & Allowances 37 900
Cash Collected ($319 120 + GST) 351 032
Bad Debts to be written off 4 022
Accounts Receivable written off ($4022 + GST) 4 424
GST Payable ($552 000 – $37 900)  10%51 410

A.
1.

2.

3.
 Chapter 12: Receivables

B.
1.

2.

3.

Exercise 12.3 Bad debts and financial statement disclosure

The following transactions relate to the gardening maintenance business of Steve Jones. The
balance in the Allowance for Doubtful Debts account on 1 July 2014 was $7440. The bad debts
during the year ended 30 June 2015 amounted to $5220. Debtors’ balances on 30 June 2015
after the bad debts had been written off total $162 960, and a new allowance of 5% of debtors is
required. (Ignore GST for the purposes of this exercise.)

Required
A. Prepare and balance the Allowance for Doubtful Debts accounts for the year to 30 June
2015.
B. Show how the above information would be disclosed in:
1. the income statement for the year ended 30 June 2015
2. the balance sheet as at 30 June 2015.

A.
Allowance for Doubtful Debts
B.
Income Statement
for the year ended 30 June 2015 (extract)

Balance Sheet
as at 30 June 2015 (extract)

Exercise 12.4 Doubtful debts — net credit sales method

The following transactions relate to the business of Penrith Produce Ltd. Ignore GST.

June 30 Based on past experience, it was estimated that 1% of the year’s net credit sales rev-
enue of $330 000 will not be collected, and an allowance for doubtful debts was es-
tablished.
Oct. 5 After a concerted effort to collect, an account receivable of $550 from M. McGrath
was written off as a bad debt.

Nv. 15 M. McGrath unexpectedly paid $242 of the amount of his debt written off on 5 Octo-
ber.

Required
A. Record the transactions in general journal form.
B. What is the balance in the Allowance for Doubtful Debts accounts and the Bad Debts
Recovered account? Where are these accounts shown on the financial statements?

A
June 30

Oct 5

Nov 15
 Chapter 12: Receivables

B.

Exercise 12.5 Doubtful debts — ageing method

On 30 June, the end of its financial year, Burnside Consulting completed an age analysis of its
accounts receivable and determined that an allowance for doubtful debts of $12 320 was needed
in order to report accounts receivable at their estimated collectable amount in the balance sheet.
Assume a 10% GST.

Required
A. Prepare the entry to record bad debts expense assuming that the Allowance for Doubtful
Debts account currently has a $1940 credit balance.
B. Prepare the entry to record bad debts expense assuming that the Allowance for Doubtful
Debts account currently has a $820 debit balance.
C. Prepare the entry to write off an account receivable from G. Smith for $781.
D. Prepare the entry to write off the account receivable in C above if the business was not
registered to the GST.
E. Assume that before the entry recorded in requirement C above, the net amount of
accounts receivable was $99 000 including GST. What is the net amount receivable
from accounts receivable after recording the write-off of Smith’s account? Explain.

A.

B.

C.

D.
E.

Before After
C C
 Chapter 12: Receivables

Exercise 12.6 Doubtful debts — net credit sales method

The following details were obtained from the accounting records of Civil Construction
Consultants at the end of the financial year.

Consulting fee owing $470 000 (excludes GST)

Allowance for doubtful debts 30 000
Debts to be written off 9 100 (excludes GST)

The firm requires an allowance for doubtful debts of 10% of outstanding fees at 30 June. Ignore
GST.

Required
A. Prepare the appropriate general journal entries.
B. Prepare and balance the Allowance for Doubtful Debts account at 30 June 2015.
C. Show the amount(s) to be charged as bad debts expense for the year.

A.

June 30

B.
Allowance for Doubtful Debts

C.

Exercise 12.7 Doubtful debts — net credit sales method

Refer to the data in exercise 18.6. Assume that the firm is registered for the GST, i.e. consulting
fees owing will be $517 000 (including GST) and debts to be written off are $10 010 (including
GST).

Required
A. Prepare the appropriate general journal entries.
B. Prepare and balance the Allowance for Doubtful Debts account at 30 June 2015.
C. Show the amount(s) to be charged as bad debts expense for the year.

A.

June 30

B.
Allowance for Doubtful Debts

C.