8-40 CHAPTER 8 Reporting and Analyzing Receivables Prepare fornal entries related to bad debe expense, and...

a.

	Journal entry	Dr.	Cr.
1	Accounts Receivable	$2,500,000
	Sales		$2,500,000
	(sales made on credit)
2	Sales return	$50,000
	Accounts receivable		$50,000
	(reducing sales and accounts receivable by the amount of goods returned)
3	cash	$2,200,000
	Accounts receivable		$2,200,000
	(A/R collected)
4	Bad debts expense	$4,000
	Allowance for doubtful accounts		4000
	(allowance has only $37000, actual bad debts $41000, so creating allowance for the difference)
	allowance for doubtful accounts	41000
	Accounts receivable		41000
	(writing off bad debts under allowance)
5	Accounts receivable	$15,000
	Allowance for doubtful accounts		$15,000
	(reversing the entry made for writing of bad debts)
5	Cash	$15,000
	Accounts receivable		$15,000
	($15000 recovered from debtors)

2.

3.

Bad debts	31000
allowance for bad debts		31000
(since as per aging report estimated bad debts are 46000, indicates allowance should have a balance of $46000)

balance of allowance for doubtful debts= $15000

balance to be created= 46000-15000=$31000

4.

accounts receivable turnover

indicates number of times , average accounts receivable are collected during a year.

net credit sales/ average accounts receivable

average accounts receivable

(opening balnce+closing balance)/2=

opening balance	600000
closing balance	809000
average balance	(600000+809000)/2

=704500

Net credit sales
sales	2500000
less: return	50000
	2450000

accounts receivable turnover= 2450000/704500= 3.44

average collection period

denotes the average no of days between the credit sales made and the amount actually collected.

average collection period = no. of days in the year 2017/ accounts receivable turnover ratio

=365/3.44

=104.95 days

opening bal ON- Accounts Receivable 600.000.00 2,500,000.00 50,000.00 2,200,000.00 41,000.00 15,000.00 15,000.00 809,000.00 opening bal Allowance for doubtful debts 37,000.00 41,000.00 4,000.00 15,000.00 15,000.00