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Chapter 8: Q6RQ (page 465)
What are some benefits to a business in accepting credit cards and debit cards?
A significant advantage of accepting credit and debit cards are attracting more customers.
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In accounting for bad debts, how do the income statement approach and the balance sheet approach differ?
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.
Why must companies record accrued interest revenue at the end of the accounting period?
What occurs when a business factors its receivables?
Accounting for uncollectible accounts using the allowance (percent of-sales) and direct write-off methods and reporting receivables on thebalance sheet
On August 31, 2018, Forget-Me-Not Floral Supply had a \(140,000 debit balance inAccounts Receivable and a \)5,600 credit balance in Allowance for Bad Debts. DuringSeptember, Forget-Me-Not made the following transactions:
• Sales on account, \(530,000. Ignore Cost of Goods Sold.
• Collections on account, \)573,000.
• Write-offs of uncollectible receivables, $6,000.
Requirements
1. Journalize all September entries using the allowance method. Bad debts expense wasestimated at 2% of credit sales. Show all September activity in Accounts Receivable,Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts).
2. Using the same facts, assume that Forget-Me-Not used the direct write-off methodto account for uncollectible receivables. Journalize all September entries using thedirect write-off method. Post to Accounts Receivable and Bad Debts Expense, andshow their balances at September 30, 2018.
3. What amount of Bad Debts Expense would Forget-Me-Not report on its Septemberincome statement under each of the two methods? Which amount better
matches expense with revenue? Give your reason.
4. What amount of net accounts receivable would Forget-Me-Not report on its September
30, 2018, balance sheet under each of the two methods? Which amount ismore realistic? Give your reason
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