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.

Step by step solution

01

Requirement 1: Journalize the transactionsof Signature Lamp

Date	Account and explanation	Debit	Credit
2018
	Accounts receivable Sales Revenue (Sold goods on account)	$ 273,400	$ 273,400
	Cash Sales Revenue (Sold goods on account)	$ 223,000	$223,000
	Allowance for Bad Debts Accounts Receivable (Wrote off an uncollectible account)	$ 5,900	$ 5,900
	Bad Debts Allowance for Bad Debts (Recorded bad debts expense for the period.)	$5,200	$5,200

02

Requirement2: Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense T-accounts

Accounts Receivable

Bal. $ 10,800	Collections $ 223,000
Net credit sales$ 273,400	Uncollectable $ 5,900
Bal. $ 55,300

Allowance for Bad Debts

Write off $ 5,900	Bal. $ 2,000
	Provision $5,200
	Bal. $ 1,300

Bad Debts

$5,200

03

Requirement3: report net accounts receivable on its December 31, 2018

Particular’s	As at December, 2018
Accounts Receivable Less: Allowance for Bad Debts	$ 55,300 $ (1,300)
Net Realizable Value	$54,000

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