Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-18
HANDOUT 6 – 1, CONTINUED
(4) After many collection attempts, the Company determined on June 15, 2015 that it would not collect
$10,000 in accounts receivables from Pendant Publishing. It decided to write-off this account.
Jun. 15
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
(5) On July 16, 2015, Pendant Publishing called to say that they have had financial problems but can
afford to pay $7,000 to settle their $10,000 debt in full. The company agreed to these terms, and reversed
$7,000 of the prior write-off. It received a $7,000 check from Pendant the next day.
Jul. 16
Jul. 16
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Post the above entries to the following T-accounts:
+ Accounts Receivable (A) –
– Allowance for Doubtful Accounts (xA) +
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-19
HANDOUT 6 – 1 SOLUTION
ACCOUNTS RECEIVABLE JOURNAL ENTRIES
Prepare journal entries to record the following transactions:
(1) On December 15, 2014, the company recorded $150,000 sales on credit.
Dec. 15
Accounts Receivable (+A)
150,000
Sales (+R, +SE)
150,000
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Accounts
Receivable
+150,000
Sales
+150,000
(2) On December 31, 2014, the company estimated bad debt expenses of $15,000.
Dec. 31
Bad Debt Expense (+E, –SE)
15,000
Allowance for Doubtful Accounts (+xA, –A)
15,000
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Allowance
for
Doubtful
Accounts
–15,000
Bad Debt
Expense
–15,000
(3) On January 12, 2015, collect $100,000 worth of accounts receivable.
Jan. 12
Cash (+A)
100,000
2015
Accounts Receivable (–A)
100,000
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Cash
+100,000
Accounts
Receivable
–100,000
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-20
HANDOUT 6 – 1 SOLUTION, CONTINUED
(4) After many collection attempts, the Company determined on June 15, 2015 that it would not collect
$10,000 in accounts receivables from Pendant Publishing. It decided to write-off this account.
Jun. 15
Allowance for Doubtful Accounts (–xA, +A)
10,000
2015
Accounts Receivable (–A)
10,000
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Allowance
for
Doubtful
Accounts
+10,000
Accounts
Receivable
–10,000
(5) On July 16, 2015, Publishing called to say that they have had financial problems but can afford to pay
$7,000 to settle their $10,000 debt in full. The company agreed to these terms, and reversed $7,000 of the
prior write-off. It received a $7,000 check from Pendant the next day.
Jul. 16
Accounts Receivable (+A)
7,000
Allowance for Doubtful Accounts (+xA, –A)
7,000
Jul. 16
Cash (+A)
7,000
Accounts Receivable (–A)
7,000
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Accounts
Receivable
+7,000
Allowance
for
Doubtful
Accounts
–7,000
Cash
+7,000
Accounts
Receivable
–7,000
Post the above entries to the following T-accounts:
+ Accounts Receivable (A) –
Dec. 15
150,000
100,000
Jan. 12
10,000
Jun. 15
Jul. 16
7,000
7,000
Jul. 16
End. Bal.
40,000
– Allowance for Doubtful Accounts (xA) +
15,000
Dec. 31
Jun. 15
10,000
7,000
Jul. 16
12,000
End. Bal.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-21
HANDOUT 6 – 2
ESTIMATION AND RECORDING OF UNCOLLECTIBLE ACCOUNTS –
PERCENTAGE OF CREDIT SALES RECEIVABLE METHOD
Part 1 – During 2015, Vandolay reported $300,000 in sales. The company’s allowance for doubtful
accounts has an unadjusted credit balance of $12,000 at December 31, 2015. Based on prior experience,
management estimates that 2.5% of sales will result in bad debts. Prepare the required adjusting journal
entry.
Dec. 31
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
+ Bad Debt Expense (E) –
– Allowance for Doubtful Accounts (xA) +
Part 2 – Assume instead that the company’s allowance for doubtful accounts has an unadjusted debit
balance of $400. Prepare the required adjusting journal entry.
Dec. 31
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
+ Bad Debt Expense (E) –
– Allowance for Doubtful Accounts (xA) +
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-22
HANDOUT 6 – 2 SOLUTION
ESTIMATION AND RECORDING OF UNCOLLECTIBLE ACCOUNTS –
PERCENTAGE OF CREDIT SALES RECEIVABLE METHOD
Part 1 – During 2015, Vandolay reported $300,000 in sales. The company’s allowance for doubtful
accounts has an unadjusted credit balance of $12,000 at December 31, 2015. Based on prior experience,
management estimates that 2.5% of sales will result in bad debts. Prepare the required adjusting journal
entry.
Dec. 31
Bad Debt Expense (+E, –SE)
7,500
Allowance for Doubtful Accounts (+xA, –A)
7,500
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Allowance
for
Doubtful
Accounts
–7,500
Bad Debt
Expense
–7,500
+ Bad Debt Expense (E) –
Dec. 31
7,500
End. Bal.
7,500
– Allowance for Doubtful Accounts (xA) +
12,000
Beg. Bal.
7,500
Dec. 31
19,500
End. Bal.
Part 2 – Assume instead that the company’s allowance for doubtful accounts has an unadjusted debit
balance of $400. Prepare the required adjusting journal entry.
Dec. 31
Bad Debt Expense (+E, –SE)
7,500
Allowance for Doubtful Accounts (+xA, –A)
7,500
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Allowance
for
Doubtful
Accounts
–7,500
Bad Debt
Expense
–7,500
+ Bad Debt Expense (E) –
Dec. 31
7,500
End. Bal.
7,500
– Allowance for Doubtful Accounts (xA) +
Beg. Bal.
400
7,500
Dec. 31
7,100
End. Bal.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-23
HANDOUT 6 – 3
ESTIMATION AND RECORDING OF UNCOLLECTIBLE ACCOUNTS –
AGING OF ACCOUNTS RECEIVABLE METHOD
Part 1 – During 2015, Vandolay reported $300,000 in sales. The company’s allowance for doubtful
accounts has an unadjusted credit balance of $12,000 at December 31, 2015. Vandolay Industries
accountants prepared the following Aging of Accounts Receivable:
Customer
Total
Number of days unpaid
0-30
30-60
60-90
Over 90
Alpha Sales
$ 700
$ 700
Gamma Manufacturing Co.
11,900
$ 11,900
Delta Shipping Corp.
2,200
$ 2,200
Epsilon Industries
6,000
$ 6,000
Theta Manufacturing
1,800
1,800
Zeta Industries
600
600
Other customers
136,800
88,100
26,900
9,800
12,000
Totals
$160,000
$100,000
$30,000
$12,000
$18,000
Vandolay accountants believe that receivables 0-30 days old have a 4% chance of noncollection.
Receivables 30-60 days old have a 10% chance of noncollection. Receivables 60-90 days old have a 20%
chance of noncollection. Receivables over 90 days old have a 40% chance of noncollection. The
company’s allowance for doubtful accounts has an unadjusted credit balance of $12,000. Prepare the
required adjusting journal entry.
Dec. 31
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
+ Bad Debt Expense (E) –
– Allowance for Doubtful Accounts (xA) +
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-24
HANDOUT 6 – 3, CONTINUED
Part 2 – Assume instead that the company’s allowance for doubtful accounts has an unadjusted debit
balance of $400. Prepare the required adjusting journal entry.
Dec. 31
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
+ Bad Debt Expense (E) –
– Allowance for Doubtful Accounts (xA) +
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-25
HANDOUT 6 – 3 SOLUTION
ESTIMATION AND RECORDING OF UNCOLLECTIBLE ACCOUNTS –
AGING OF ACCOUNTS RECEIVABLE METHOD
Part 1 – During 2015, Vandolay reported $300,000 in sales. The company’s allowance for doubtful
accounts has an unadjusted credit balance of $12,000 at December 31, 2015. Vandolay Industries
accountants prepared the following Aging of Accounts Receivable:
Customer
Total
Number of days unpaid
0-30
30-60
60-90
Over 90
Alpha Sales
$ 700
$ 700
Gamma Manufacturing Co.
11,900
$ 11,900
Delta Shipping Corp.
2,200
$ 2,200
Epsilon Industries
6,000
$ 6,000
Theta Manufacturing
1,800
1,800
Zeta Industries
600
600
Other customers
136,800
88,100
26,900
9,800
12,000
Totals
$160,000
$100,000
$30,000
$12,000
$18,000
x 4%
x 10%
x 20%
x 40%
$ 16,600
$ 4,000
$ 3,000
$ 2,400
$ 7,200
Vandolay accountants believe that receivables 0-30 days old have a 4% chance of noncollection.
Receivables 30-60 days old have a 10% chance of noncollection. Receivables 60-90 days old have a 20%
chance of noncollection. Receivables over 90 days old have a 40% chance of noncollection. The
company’s allowance for doubtful accounts has an unadjusted credit balance of $12,000. Prepare the
required adjusting journal entry.
Dec. 31
Bad Debt Expense (+E, –SE)
4,600
Allowance for Doubtful Accounts (+xA, –A)
4,600
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Allowance
for
Doubtful
Accounts
–4,600
Bad Debt
Expense
–4,600
+ Bad Debt Expense (E) –
Dec. 31
4,600
End. Bal.
4,600
– Allowance for Doubtful Accounts (xA) +
12,000
Beg. Bal.
4,600
Dec. 31
16,600
End. Bal.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-26
HANDOUT 6 – 3 SOLUTION, CONTINUED
Part 2 – Assume instead that the company’s allowance for doubtful accounts has an unadjusted debit
balance of $400. Prepare the required adjusting journal entry.
Dec. 31
Bad Debt Expense (+E, –SE)
17,000
Allowance for Doubtful Accounts (+xA, –A)
17,000
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Allowance
for
Doubtful
Accounts
–17,000
Bad Debt
Expense
–17,000
+ Bad Debt Expense (E) –
Dec. 31
17,000
End. Bal.
17,000
– Allowance for Doubtful Accounts (xA) +
Beg. Bal.
400
17,000
Dec. 31
16,600
End. Bal.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-27
HANDOUT 6 – 4
BANK RECONCILIATION
Information from the records and bank statement and of Matrix, Inc. as of July 31, 2014 is set forth below
Cash balance per bank, July 31, 2014
$9,610
Cash balance per general ledger, July 31, 2014
7,430
Outstanding checks at July 31, 2014
2,417
Check mailed to the bank for deposit that had not reached the bank by July 31, 2014
500
NSF check (from a customer for a payment on account) returned by bank
281
July interest earned per bank statement
30
Check no. 781 for supplies expense cleared the bank for $240, but was erroneously
recorded in the books at $268.
Deposit by Acme Company erroneously credited by the bank to our account
486
Part A
Prepare the bank reconciliation for Matrix, Inc.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-28
HANDOUT 6 – 4, continued
Part B
Prepare any journal entries that should be made as a result of the bank reconciliation.
Date
Accounts
Debit
Credit
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-29
HANDOUT 6 – 4 SOLUTION
BANK RECONCILIATION
Information from the records and bank statement and of Matrix, Inc. as of July 31, 2014 is set forth below
Cash balance per bank, July 31, 2014
$9,610
Cash balance per general ledger, July 31, 2014
7,430
Outstanding checks at July 31, 2014
2,417
Check mailed to the bank for deposit that had not reached the bank by July 31, 2014
500
NSF check (from a customer for a payment on account) returned by bank
281
July interest earned per bank statement
30
Check no. 781 for supplies expense cleared the bank for $240, but was erroneously
recorded in the books at $268.
Deposit by Acme Company erroneously credited by the bank to our account
486
Part A
Prepare the bank reconciliation for Matrix, Inc.
Matrix, Inc.
Bank Reconciliation
July 31, 2014
Bank Statement
Books
Ending cash balance per bank statement
$9,610
Ending cash balance per books
$7,430
Additions:
Additions:
Deposit in transit
500
Interest
30
Deductions:
Recording error check 781
28
Bank error
(486)
Deductions:
Outstanding checks
(2,417)
NSF check
(281)
Up–to-date ending cash balance
$7,207
Adjusted Balance, July 31
$7,207
Part B
Prepare any journal entries that should be made as a result of the bank reconciliation.
Date
Accounts
Debit
Credit
7/31/10
Cash (+A)
30
Interest Revenue (+R, +SE)
30
7/31/10
Cash (+A)
28
Accounts Payable (+L)
28
7/31/10
Accounts Receivable (+A)
281
Cash (–A)
281
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-30
HANDOUT 6 – 5
BANK RECONCILIATION
Prepare the bank reconciliation for Donna’s Day Care using the following information:
Cash balance per bank, June 30, 2014
$5,586
Cash balance per general ledger, June 30, 2014
5,055
Outstanding checks, June 30, 2014
1,816
Deposit in transit, June30, 2014
750
NSF check (from a customer for a payment on account) returned by bank
450
June interest earned per bank statement
15
Check no. 800 in payment of accounts payable cleared the bank for $1,100, but was
erroneously recorded in the books at $$800.
Deposit in amount of $6,000, recorded properly on books, erroneously credited on bank
statement as $5,800
Part A
Prepare the bank reconciliation for Donna’s Day Care.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-31
HANDOUT 6 – 5, continued
Part B
Prepare any journal entries that should be made as a result of the bank reconciliation.
Date
Accounts
Debit
Credit
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-32
HANDOUT 6 – 5 SOLUTION
BANK RECONCILIATION
Prepare the bank reconciliation for Donna’s Day Care using the following information:
Cash balance per bank, June 30, 2014
$5,586
Cash balance per general ledger, June 30, 2014
5,055
Outstanding checks, June 30, 2014
1,816
Deposit in transit, June30, 2014
750
NSF check (from a customer for a payment on account) returned by bank
450
June interest earned per bank statement
15
Check no. 800 in payment of accounts payable cleared the bank for $1,100, but was
erroneously recorded in the books at $$800.
Deposit in amount of $6,000, recorded properly on books, erroneously credited on bank
statement as $5,800.
Part A
Prepare the bank reconciliation for Donna’s Day Care.
Donna’s Day Care
Bank Reconciliation
June 30, 2014
Bank Statement
Books
Ending cash balance per bank statement
$5,586
Ending cash balance per books
$5,055
Additions:
Additions:
Deposit in Transit
750
Interest
15
Deductions:
Deductions:
Bank error
(200)
Recording error check 800
(300)
Outstanding checks
(1,816)
NSF check
(450)
Up–to-date ending cash balance
$4,320
Adjusted Balance, July 31
$4,320
Part B
Prepare any journal entries that should be made as a result of the bank reconciliation.
Date
Accounts
Debit
Credit
6/30/10
Cash (+A)
15
Interest Revenue (+R, +SE)
15
6/30/10
Accounts Payable (–L)
300
Cash (–A)
300
6/30/10
Accounts Receivable (+A)
450
Cash (–A)
450
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-33
HANDOUT 6 – 6
SALES JOURNAL ENTRIES
On March 3, 2014, Gooddeal.com sold merchandise for $2,500, terms 2/10 n/30. Prepare the journal
entry.
Debit and credit the accounts affected
Mar. 3
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
The customer paid for the merchandise on March 6, 2014, taking advantage of the permitted discount.
Prepare the journal entry.
Debit and credit the accounts affected
Mar. 6
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
On March 8, 2014, the customer returned $1,250 (or one-half) of the merchandise that was purchased
back on March 3. Prepare the journal entry.
Debit and credit the accounts affected
Mar. 8
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-34
HANDOUT 6 – 6 SOLUTION
SALES JOURNAL ENTRIES
On March 3, 2014, Gooddeal.com sold merchandise for $2,500, terms 2/10 n/30. Prepare the journal
entry.
Debit and credit the accounts affected
Mar. 3
Accounts Receivable (+A)
2,500
Sales (+R, +SE)
2,500
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Acct Rec.
+2,500
Sales
+2,500
The customer paid for the merchandise on March 6, 2014, taking advantage of the permitted discount.
Prepare the journal entry.
Debit and credit the accounts affected
Mar. 6
Cash (+A) [2,500 x 98%]
2,450
Sales Discounts (+xR, –SE) [2,500 x 2%]
50
Accounts Receivable (–A)
2,500
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Cash
+2,450
Sales Disc.
–50
Acct Rec.
–2,500
On March 8, the customer returned $1,250 (or one-half) of the merchandise that was purchased back on
March 3. Prepare the journal entry.
Debit and credit the accounts affected
Mar. 8
Sales Returns and Allowances (+xR, –SE)
1,250
Cash (–A) [2,500 x 50%]
1,250
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Cash
–1,250
Sales Returns
&Allowances
–1,250