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Chapter 8: Q2SE (page 466)

Recording credit sales and collections

Record the following transactions for Summer Consulting. Explanations are not required.

Apr. 15

Provided consulting services to Bob Jones and billed the customer \(1,500.

18

Provided consulting services to Samantha Cruise and billed the customer \)865.

25

Received \(750 cash from Jones.

28

Provided consulting services to Regan Taylor and billed the customer \)625.

28

Received \(865 cash from Cruise.

30

Received \)1,375 cash, \(750 from Jones and \)625 from Taylor

Short Answer

Expert verified

The transaction for which the payment is made after some time of billing is called credit sales.

Step by step solution

01

Explanation of Collection Period

The term collection period refers to the period of time allowed by a seller to its customers to make the payment of the transaction

02

Journalize the transactions for summer consulting

Date

Account and explanation

Debit

Credit

April 15

Accounts receivable – Bod Jones

Service Revenue

(Services performed on account)

$ 1,500

$ 1,500

April 18

Accounts receivable – Samantha Cruise

Service Revenue

(Services performed on account)

$ 865

$ 865

April 25

Cash

Accounts receivable – Bod Jones

(Collected cash on account)

$ 750

$750

April 28

Accounts receivable – Regan Taylor

Service Revenue

(Services performed on account)

$625

$625

April 28

Cash

Accounts receivable – Cruise

(Collected cash on account)

$865

$865

June 30

Cash

Accounts receivable – Regan Taylor

Accounts receivable – Cruise

(Collected cash on account)

$1,375

$1,375

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Most popular questions from this chapter

Lovett Company reported the following selected items at March 31, 2018 (last year’s—2017—amounts also given as needed):

Accounts Payable \( 128,000 Accounts Receivable, net:

Cash 104,000 March 31, 2018 \) 108,000

Merchandise Inventory: March 31, 2017 68,000

March 31, 2018 116,000 Cost of Goods Sold 460,000

March 31, 2017 80,000 Short-term Investments 56,000

Net Credit Sales Revenue 1,168,000 Other Current Assets 48,000

Long-term Assets 168,000 Other Current Liabilities 72,000

Long-term Liabilities 52,000

14. Compute Lovett’s (a) acid-test ratio, (b) accounts receivable turnover ratio, and (c) days’ sales in receivables as of

March 31, 2018.

Ensuring internal control over the collection of receivables Consider internal control over receivables collections. What job must be withheld from a company’s credit department in order to safeguard its cash? If the credit department does perform this job, what can a credit department employee do to hurt the company?

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.

At September 30, 2018, the accounts of Green Terrace Medical Center (GTMC)

include the following:

Accounts Receivable \( 145,000

Allowance for Bad Debts (credit balance) 3,500

During the last quarter of 2018, GTMC completed the following selected transactions:

• Sales on account, \)450,000. Ignore Cost of Goods Sold.

• Collections on account, \(427,100

• Wrote off accounts receivable as uncollectible: Regan, Co., \)1,400; Owen Reis, \(800;

and Patterson, Inc., \)700

• Recorded bad debts expense based on the aging of accounts receivable, as follows:

Age of Accounts

1–30 Days 31–60

Days

61–90

Days

Over 90

Days

Accounts Receivable \( 104,000 \) 39,000 \( 14,000 \) 8,000

Estimated percent uncollectible 0.3% 3% 30% 35%

Requirements

1. Open T-accounts for Accounts Receivable and Allowance for Bad Debts.

Journalize the transactions (omit explanations) and post to the two accounts.

2. Show how Green Terrace Medical Center should report net accounts receivable on

its December 31, 2018, balance sheet.

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
See all solutions

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