Lecture Illustration 1

Recording transactions for bad and doubtful debts.

Transactions for Harrington Ltd.’s Accounts Receivable for the year ending
30 June are listed below.
On 1 July of the previous year, the opening balance of the Allowance for Doubtful Debts
account was a credit of $3,410. G.S.T. is 10%

Aug.6 Wrote off the $990 account of North Ltd as uncollectable

Sept 10 Received 50% of the $1,540 balance owed by J. Wiley and wrote off the
remainder as a bad debt
Nov 22 Recorded the collection of $704 from G. Grape in full payment of his
account, which had been written off earlier as a bad debt
Feb 15 Wrote off the accounts of Argo Ltd., $946 and R. Donkin, $451, as
bad debts
March 2 Received $990 from E. Johnston in full payment of his account, which
had been written off earlier as a bad debt
May 19 Receive 25% of the $2,860 owed by K. Jamieson and wrote off the
remainder as a bad debt
June 30 Estimated bad debts expense for the year to be 1% of net credit sales
of $548,350 (including G.S.T.).; sales returns were $3,850 (including GST).

1. Record the General Journal entries for each of the above transactions
2. Prepare the Allowance for Doubtful Debts account
3. Instead of basing the allowance on net credit sales, the allowance is based on an
ageing of Accounts Receivable and that $7,645 of the Accounts Receivable at 30
June were estimated to be uncollectable.

Determine the adjustment necessary to bring the allowance account to the desired
balance and prepare the Allowance for Doubtful Debts accounts.

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1.
6 Aug Allowance for doubtful debts 900
GST Collected/Payable 90
Accounts receivable – North Ltd 990
Recorded bad debt

10 Sept Cash at bank 770

Allowance for doubtful debts 700
GST Collected/Payable 70
Accounts receivable -J. Wiley 1,540
Received part payment & wrote off remainder
Or
Cash at bank 770
Accounts receivable -J. Wiley 770

Allowance for doubtful debts 700

GST Collected/Payable 70
Accounts receivable -J. Wiley 770

22 Nov Accounts Receivable – G. Grape 704

Bad debts recovered 640
GST Collected/Payable 64
Bad debts recovered

Cash at bank 704

Accounts Receivable – G. Grape 704
Receipt from accounts receivable

15 Feb Allowance for doubtful debts 1,270

GST Collected/Payable 127
Accounts receivable Argo Ltd 946
Accounts receivable – R. Donkin 451
Bad debts written off
OR
Allowance for doubtful debts 860
GST Collected/Payable 86
Accounts receivable Argo Ltd 946

Allowance for doubtful debts 410

GST Collected/Payable 41
Accounts receivable – R. Donkin 451

2 March Accounts receivable – E. Johnston 990

Bad debts recovered 900
GST Collected/Payable 90
Bad debt recovered

Cash at bank 990

Accounts receivable – E. Johnston 990
Receipt from accounts receivable

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 19 May Cash at bank 715
Allowance for doubtful debts 1,950
GST Collected/Payable 195

Accounts receivable – K. Jamieson 2,860

Recorded bad debt

30 June Bad debts expense 4,950

Allowance for doubtful debts 4,950
Adjustment for estimated bad debts
($495,000* x 1%)

Sales 548,350
Less sales returns 3,850
Net sales (includes GST) 544,500
Less GST 49,500
Net sales (excluding GST) 495,000

Bad debts expense: 495,000 x 1% = 4,950

2.
Allowance for doubtful debts
Date Account Debit Credit Balance
1 July Balance 3,410 Cr
6 Aug Accounts receivable – North Ltd 900 2,510 Cr
10 Sept Accounts receivable – J. Wiley 700 1,810 Cr
15 Feb Accounts receivable – Argo Ltd/Donkin 1,270 540 Cr
19 May Accounts receivable – K. Jamieson 1,950 1,410 Dr
30 June Bad debts expense 4,950 3,,540 Cr

3.
Allowance for doubtful debts
Date Account Debit Credit Balance
1 July Balance 3,410 Cr
6 Aug Accounts receivable – North Ltd 900 2,510 Cr
10 Sept Accounts receivable – J. Wiley 700 1,810 Cr
15 Feb Accounts receivable – Argo Ltd/Donkin 1,270 540 Cr
19 May Accounts receivable – K. Jamieson 1,950 1,410 Dr
30 June Bad debts expense 8,360 *6,950 Cr

Accounts Receivable (including GST) $7,645

Less GST 695
Allowance for doubtful debts 6,950

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Lecture Illustration 2
(source: chapter 12,problem 12.14)

The accountant for Debbie’s Dance Ltd prepared an ageing analysis of accounts receivable
balances at 30 June 2016 as set out below. The percentages of each age group are based
on past experience and are shown next to the aged balances. The company is registered for
GST.

The allowance method is used to account for bad debts. On 30 June 2016 the credit balance
of the Allowance for Doubtful Debts account is $3150 before any adjustments.

Estimated uncollectable
Age (%) Balance
Current 0.5 $346,500
30–60 days overdue 2.0 99,000
61–120 days overdue 10 24,750
121 days to 6 months overdue 20 29,700
Over 6 months overdue 40   19,800
$519,750

Prepare the general journal adjusting entry for estimated bad debts on 30 June 2016.

a.
Sales Sales (including GST)
$346,500 $346,500  0.5% 1 732.50
99,000 99 000  2.0% 1 980.00
24,750 24 750  10% 2 475.00
29,700 29 700  20% 5 940.00
19,800 19 800  40% 7 920
Total 20 047.50
Less GST 1 822.50
Desired allowance 18 225.00
Less beg. balance 3 150
Adjustment required 15 075.00

Alternatively:

Sales Sales(excluding GST)

$346,500 $315 000  0.5% 1 575
99,000 90 000  2.0% 1 800
24,750 22 500  10% 2 250
29,700 27 000  20% 5 400
19,800 18 000  40% 7 200
Desired balance 18 225
Less: beg. balance 3,150
Adjustment required 15 075

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 General Journal
June 30 Bad Debts Expense $15,075
Allowance for Doubtful Debts $15,075
Record allowance for doubtful debts.

b.
General Journal
2015
Sept. Allowance for Doubtful Debts $1,500
GST Payable/Collected 150
Accounts Receivable – S. Riley $1,650
Write off account.