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Chapter 8: 16E (page 432)

Recording credit sales and collections

Steller Corporation had the following transactions in June:

Jun .1

Sold merchandise inventory on account to Carter Company, \(1,575.

6

Sold merchandise inventory for cash, \)550

12

Received cash from Carter Company in full settlement of its accounts receivable

20

Sold merchandise inventory on account to Iris Company, \(765

22

Sold merchandise inventory on account to Driver Company, \)230

28

Received cash from Iris Company in partial settlement of its accounts receivable, \(300

Requirements

1. Journalize the transactions. Ignore Cost of Goods Sold. Omit explanations.

2. Post the transactions to the general ledger and the accounts receivable subsidiary

ledger. Assume all beginning balances are \)0.

3. Verify the ending balance in the control Accounts Receivable equals the sum of the

balances in the subsidiary ledger.

Short Answer

Expert verified

(1) The journal entries are recorded in Step 2.

(2) The ledgers are shown in Step 2.

(3)The balance of the control account is $ 695.

Step by step solution

01

Definition of accounts receivables

An accounts receivable means the amount that is outstanding from the customers’ end for the goods sold on credit.

02

Journal entry of transactions

Date

Particulars

Debit

Credit

June 1

Accounts Receivables—Carter

$1,575

Sales Revenue

$1,575

(Being sold goods on account)

June 6

Cash

$550

Sales Revenue

$550

(Being goods sold on cash)

June 12

Cash

$1,575

Accounts Receivable—Carter

$1,575

(Being cash received from the accounts receivable)

June 20

Accounts Receivable—Iris

$765

Sales Revenue

$765

(Being goods sold on account)

June 22

Accounts Receivable—Driver

$230

Sales Revenue

$230

(Being goods sold on account)

June 28

Cash

$300

Accounts Receivable—Iris

$300

(Being cash received from the accounts receivable)

03

Preparation of subsidiary ledger

Sales Revenue

Date

Particulars

Amount

Date

Particulars

Amount

June 1

Accounts Receivable—Carter

$1,575

June 6

Cash

$550

June 20

Accounts Receivable—Iris

$765

June 22

Accounts Receivable—Driver

$230

Balance

$3,120

Cash

Date

Particulars

Amount

Date

Particulars

Amount

June 6

Sales Revenue

$550

June 12

Accounts receivable—Carter

$1,575

June 28

Accounts receivable—Iris

$300

Balance

$2,425

Accounts Receivables—Carter

Date

Particulars

Amount

Date

Particulars

Amount

June 1

Sales Revenue

$1,575

June 12

Cash

$1,575

Balance

$0

Accounts Receivables—Iris

Date

Particulars

Amount

Date

Particulars

Amount

June 20

Sales Revenue

$765

June 28

Cash

$300

Balance.

$465

Accounts Receivables—Driver

Date

Particulars

Amount

Date

Particulars

Amount

June 22

Sales Revenue

$230

Balance

$230

04

Control account for accounts receivable

Date

Amount

Date

Amount

June 1

$1,575

June 20

$765

$1,575

June 12

June 22

$230

$300

June 28

End. Balance

$695

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Most popular questions from this chapter

Collecting a receivable previously written off—direct write-off method

Spring Garden Greenhouse had trouble collecting its account receivable from Steve Stone. On June 19, 2018, Spring Garden Greenhouse finally wrote off Stone’s \(600 account receivable. On December 31, Stone sent a \)600 check to Spring Garden Greenhouse.

Journalize the entries required for Spring Garden Greenhouse, assuming Spring Garden Greenhouse uses the direct write-off method.

What is the difference between accounts receivable and notes receivable?

Applying the allowance method to account for uncollectibles

The Accounts Receivable balance and Allowance for Bad Debts for Signature Lamp

Company at December 31, 2017, was \(10,800 and \)2,000 (credit balance), respectively.

During 2018, Signature Lamp Company completed the following transactions:

a. Sales revenue on account, \(273,400 (ignore Cost of Goods Sold).

b. Collections on account, \)223,000.

c. Write-offs of uncollectibles, \(5,900.

d. Bad debts expense of \)5,200 was recorded

Requirements

1. Journalize Signature Lamp Company’s transactions for 2018 assuming Signature Lamp Company uses the allowance method.

2. Post the transactions to the Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense T-accounts, and determine the ending balance of each account.

3. Show how accounts receivable would be reported on the balance sheet at December 31, 2018.

Accounting for uncollectible accounts using the allowance method (aging-of-receivables) and reporting receivables on the balance sheet.

At December 31, 2018, the Accounts Receivable balance of GPS Technology is \(200,000. The Allowance for Bad Debts account has a \)24,110 debit balance. GPS Technology prepares the following aging schedule for its accounts receivable:

Age of Accounts

1–30 Days

31–60 Days

61–90 Days

Over 90 Days

Accounts Receivable

\( 65,000

\) 50,000

\(40,000

\)45,000

Estimated percent uncollectible

0.4%

3.0%

5.0%

48.0%

Requirement:

1. Journalize the year-end adjusting entry for bad debts on the basis of the aging schedule. Show the T-account for the Allowance for Bad Debts at December 31, 2018.

2. Show how GPS Technology will report its net accounts receivable on its December 31, 2018, balance sheet

Accounting for uncollectible accounts using the allowance method

This problem continues the Canyon Canoe Company situation from Chapter 7.

Canyon Canoe Company has experienced rapid growth in its first few months of operations and has had a significant increase in customers renting canoes and purchasing T-shirts. Many of these customers are asking for credit terms. Amber and Zack Wilson, stockholders and company managers, have decided it is time to review their business transactions and update some of their business practices. Their first step is to make decisions about handling accounts receivable.

So far, year-to-date credit sales have been \(15,500. A review of outstanding

receivables resulted in the following aging schedule:


Age of Accounts as of June 30, 2019

Customer name

1-30 days

31-60 days

61-90 days

Over 90 days

Total balance

Canyon

\)250

\(250

Crazy trees

\)200

\(150

\)350

Early start Daycare

\(500

Lakefront Pavilion

\)575

\(500

\)575

Outdoor Center

\(300

\)300

Rivers Canoe Club

\(350

\)350

Sport Shirts

\(450

\)120

\(570

Zack’s Marina

\)75

\(75

\)225

Totals

\(1,900

\)345

\(375

\)500

$3,120

Requirements

1. The company wants to use the allowance method to estimate bad debts. Determine the estimated bad debts expense under the following methods at June 30, 2019. Assume a zero-beginning balance for Allowance for Bad Debts. Round to the nearest dollar.

a. Percent-of-sales method, assuming 4.5% of credit sales will not be collected.

b. Percent-of-receivables method, assuming 22.5% of receivables will not be

collected.

c. Aging-of-receivables method, assuming 5% of invoices 1–30 days will not be

collected, 20% of invoices 31–60 days, 40% of invoices 61–90 days, and 75% of

invoices over 90 days.

2. Journalize the entry at June 30, 2019, to adjust for bad debts expense using the percent-of-sales method.

3. Journalize the entry at June 30, 2019, to record the write-off of the Early Start Daycare invoice.

4. At June 30, 2019, open T-accounts for Accounts Receivable and Allowance for Bad Debts before Requirements 2 and 3. Post entries from Requirements 2 and 3 to those accounts. Assume a zero beginning balance for Allowance for Bad Debts.

5. Show how Canyon Canoe Company will report net accounts receivable on the balance sheet on June 30, 2019.
See all solutions

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