Question #2-Accounting for Bad Debts_..25 marko Xach Company had the following A

Question

Question #2-Accounting for Bad Debts_..25 marko Xach Company had the following Account balances on January 1, 2017 Accounts Receivable $220,000 (Dr) $.65,000 (Cr) Allowance for doubtful account Yach Company had the following summary transactions during 2017: 1. 2. 3. Total Sales for 2017 amounted to $1,500,000, 80% of which were on account. The Collections during year totaled $1,150,000 $63,000 were written-off as uncollected during the year Yach Company uses the Allowance method for Bad Debt Expense and the bad debt expense is estimated to be 2.5% of all Acc. Receivables Required: 1. Prepare Journal entry to record Xach Company Bad Debt Expense and the Write-offs under the Allowance Method 2. Determine the Bad Debt Expense for 2017. 3. Determine the Net Accounts Receivable balance on December 31, 2017 4. Assume after the above entries the Auditor discovered an additional $2,500 should be written off.m.no adjustment was made....So.... how will the following items of Xach Company be affected (ie. for items below.... Increased, Decreased, No Change) by this? a. Bad Debt Expense for 2017. b. Accounts Receivable on December 31,2017. c. Net Accounts Receivable on December 31, 2017.

Explanation / Answer

Journal entry under allowance method

In allowance for doubtful accounts method, bad debts expenses is recognised in the period in which revenue is recognised. It assures the matching concept principle and is as per the general accepted accounting principles.

Bad debts expenses

Allowance for doubtful accounts

($1200000 * 2.5%)

Part 2 - Bad debts expenses calculation

bad debts = 2.5%

Accounts receivable = $1200000

Bad debts = $1200000 * 2.5% = $30000

Part 3 - Net accounts receivable calculation

Allowance for doubtful accounts

Accounts receivable Ledger

Net accounts receivable table

Part 4 - Auditor discovered additional $2500 to written off

Effect of such additional $2500 write off

Effect

No effect

Note:

Accounts receivable($207000 - $2500)=$204500

Allowance for doubtful account($32000-$2500)=$29500

Net accounts receivable = ($204000 - $29500)=$175000 (No effect)

Number Journal Debit Credit 1 Accounts receivable $1200000 Cash $300000 Sales $1500000 2 Cash $1150000 Accounts receivable $1150000 3 Allowance for doubtful accounts $63000 Accounts receivable $63000 4

Bad debts expenses

Allowance for doubtful accounts

($1200000 * 2.5%)

$30000 $30000

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