Use the following information for questions 20 and 21: During the year, Xanadu C
ID: 2576416 • Letter: U
Question
Use the following information for questions 20 and 21: During the year, Xanadu Corp. made sales (assume all sales were credit sales) and collected cash from customers (ie collected on Accounts Receivable). The following information was reported in the company's financial statements: From the income statement Bad Debt Expense $300 From the balance sheet 15,000 17000 2,500 1,800 Beginning Accounts Receivable Ending Accounts Receivable Beginning Allowance for Doubtful Accounts Ending Allowance for Doubtful Accounts Note these financial statement amounts are AFTER all adjusting entries have been made - so all journal entries that SHOULD have been made to any relevant accounts HAVE ALREADY BEEN MADE and are reflected in the financial statements Cash collected from customers during the period was $196,000 (assume all sales were made on credit)Explanation / Answer
Bad debts written off = opening balance in allowance for bad debts+bad debts expense-closing balance in allowance for bad debts
Allowance for bad debts has credit balance all the time, since the bad debts are debited to allowance for bad debts and therefore reduces the amount of allowances , the bad debts allowance account is credited further by debiting bad debts expense. At the end of accounting period the closing balance of the account (Cr.) is net of opening balance (Cr.) + bad debts expense(Cr.) - any bad debt written off(Dr.)
Bad debts written off as uncollectible = 2500+300-1800 = $ 1,000
21.
To find out the credit sales for the period we go by this- Bad debts written off as uncollectible for this period , was originally amount of credit sales for this period and therfore will be added as well as the closing balance of accounts receivable. The opening balance of the accounts receivable is from the credit sales of previous period hence should be deducted. The cash collected is from this period, the bad debts expense is credited to allowance which is taken from the receivables so it should be added.
Credit Sales recorded = 1000 + 17000 -15000 + 196000 + 300 = $ 199,300