Question - Great Outdoors Ltd sells outdoor furniture settings on credit. The accounting records at 30 June 2015 reveal the following. Ignore GST.
Credit sales (for year) - $1,327,000
Credit sales returns and allowances (for year) - 112,000
Amounts receivable (balance 30 June 2015) - 405,000
Allowance for doubtful debts (credit balance 30 June 2015) - 2,000
In the past, the company's yearly bad debts expense had been estimated at 2% of net credit sales revenue. It was decided to compare the current method with an ageing of the accounts receivable method. The following analysis was obtained with respect to the accounts receivable:
|
|
Balance
|
% estimated uncollectable
|
|
Accounts not yet due
|
$217,700
|
½
|
|
Accounts overdue: 10-30 days
|
75,600
|
2
|
|
31-60 days
|
54,600
|
10
|
|
61-120 days
|
31,500
|
25
|
|
121 days and over
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25,600
|
40
|
|
|
$405,000
|
|
A. Prepare the journal entries to adjust the allowance for doubtful debts at 30 June 2015 under:
1. the net credit sales method.
2. the ageing of accounts receivable method.
B. Determine the balance in the allowance for doubtful debts account under both methods.