Accouting Solution 6.1 (Accounting for Advanced Accruals)
General journal entries reflect the events that took place in 20X7 and 20X8 for DMS Company (without closing entries):
| No |
Explanations |
Account titles |
Debit |
Credit |
| Transactions of 20X7 |
||||
| 1 |
To record bad debts expense for receivables expected to be uncollectible | Bad Debts Expense Allowance for Doubtful Accounts |
120 |
120 |
| Transactions of 20X8 |
||||
| 1 |
To write-off receivables that are deemed uncollectible | Allowance for Doubt. Accounts Accounts Receivable |
70 |
70 |
| 2a |
To re-establish receivables previously written-off | Accounts Receivable Allowance for Doubt. Debts |
30 |
30 |
| 2b |
To collect cash from accounts receivable | Cash Accounts Receivable |
30 |
30 |
| 3 |
To record bad debts expense for receivables expected to be uncollectible | Bad Debts Expense Allowance for Doubtful Debts |
29.5* |
29.5* |
* See after T-accounts.
T-accounts contain the same information as the journal entries:
| For 20X7 |
||||||
| Assets |
= |
Liabilities |
+ |
Equity |
||
| Cash |
0 |
Contributed Capital |
||||
| Beg. 500 | Beg. 300 | |||||
| End. 500 | End. 300 | |||||
| Accounts Receivable |
Retained Earnings |
|||||
| Beg. 800 | Beg. 1,000 | |||||
| End. 800 | End. 1,000 | |||||
| Allowance for Doubtful |
Bad Debts Expense |
|||||
| Debts |
Beg. 0 | |||||
| Beg. 0 | (1) 120 | |||||
| (1) 120 | End. 120 | |||||
| End. 120 | ||||||
| For 20X8 |
||||||
| Assets |
= |
Liabilities |
+ |
Equity |
||
| Cash |
0 |
Contributed Capital |
||||
| Beg. 500 | Beg. 300 | |||||
| (2b) 30 | End. 300 | |||||
| End. 530 | ||||||
| |
Retained Earnings |
|||||
| Accounts Receivable |
|
Beg. 1,000 | ||||
| Beg. 800 | (1) 70 (2b) 30 |
End. 1,000 | ||||
| (2a) 30 | ||||||
| Bad Debts Expense |
||||||
| End. 730 | Beg. 120 | |||||
| (3) 29.5* | ||||||
| Allowance for Doubtful |
End. 149.5 |
|||||
| Debts |
||||||
| (1) 70 | Beg. 120 | |||||
| (2a) 30 | ||||||
| (3) 29.5* | ||||||
| End. 109.5 | ||||||
* Calculation of bad debts expense for 20X8:
Balance of allowance for doubtful debts that should exist after the adjusting entry (Event No.3) = $730 receivables balance x 15% = $109.5
The amount of bad debts expense is computed as follows:
Beg. Bal. + Credits - Debits = End. Bal. or
120 + [30 + Exp] - 70 = 109.5
Therefore, the bad debt expense equals $29.5.
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