Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-19
HANDOUT 6 – 1, CONTINUED
(4) After many collection attempts, on June 15, Year 2, the company determined that it would not collect
$10,000 in accounts receivables from Pendant Publishing. It decided to write-off this account.
Jun. 15
(5) On July 16, Year 2, 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
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
6-20
HANDOUT 6 – 1 SOLUTION
ACCOUNTS RECEIVABLE JOURNAL ENTRIES
Prepare journal entries to record the following transactions:
(1) On December 15, Year 1, the company recorded $150,000 sales on credit.
Dec. 15
Accounts Receivable (+A)
150,000
Sales (+R, +SE)
150,000
Accounts
Receivable
Sales
(2) On December 31, Year 1, 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
–15,000
Bad Debt
–15,000
(3) On January 12, Year 2, the company collected $100,000 worth of accounts receivable.
Jan. 12
Cash (+A)
100,000
Accounts Receivable (–A)
100,000
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Cash
Receivable
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-21
HANDOUT 6 – 1 SOLUTION, CONTINUED
(4) After many collection attempts, on June 15, Year 2, the company determined 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
Accounts Receivable (–A)
10,000
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Accounts
(5) On July 16, Year 2, 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
Accounts Receivable (+A)
7,000
Allowance for Doubtful Accounts (+xA, –A)
7,000
Accounts Receivable (–A)
7,000
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
Receivable
Cash
Receivable
Accounts
+7,000
Post the above entries to the following T-accounts:
+ Accounts Receivable (A) –
Dec. 15
150,000
Jan. 12
10,000
Jun. 15
Jul. 16
Jul. 16
End. Bal.
40,000
Jun. 15
Jul. 16
End. Bal.
– Allowance for Doubtful Accounts (xA) +
15,000
Dec. 31
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-22
HANDOUT 6 – 2
ESTIMATION AND RECORDING OF UNCOLLECTIBLE ACCOUNTS –
PERCENTAGE OF CREDIT SALES RECEIVABLE METHOD
Part 1 – Vandalia reported $300,000 in sales during Year 2. The company’s allowance for doubtful
accounts has an unadjusted credit balance of $12,000 at December 31, Year 2. Based on prior experience,
management estimates that 2.5% of sales will result in bad debts. Prepare the required adjusting journal
entry.
Dec. 31
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
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-23
HANDOUT 6 – 2 SOLUTION
ESTIMATION AND RECORDING OF UNCOLLECTIBLE ACCOUNTS –
PERCENTAGE OF CREDIT SALES RECEIVABLE METHOD
Part 1 – Vandalia reported $300,000 in sales during Year 2. The company’s allowance for doubtful
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
+
Accounts
Dec. 31
End. Bal.
Beg. Bal.
Dec. 31
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
+
Doubtful
Accounts
Dec. 31
End. Bal.
Beg. Bal.
Dec. 31
End. Bal.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-24
HANDOUT 6 – 3
ESTIMATION AND RECORDING OF UNCOLLECTIBLE ACCOUNTS –
AGING OF ACCOUNTS RECEIVABLE METHOD
Part 1 – Vandalia reported $300,000 in sales during Year 2. The company’s allowance for doubtful
accounts has an unadjusted credit balance of $12,000 at December 31, Year 2. At that time, Vandalia’s
accountant 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.
Epsilon Industries
$ 6,000
Theta Manufacturing
1,800
Zeta Industries
Other customers
136,800
88,100
26,900
9,800
12,000
Totals
$160,000
$100,000
$30,000
$12,000
$18,000
Based on prior experience, Vandalia’s accountant estimates the probable bad debt loss rates for each
category to be as follows: 0-30 days old, 4%; 30-60 days old, 10%; 60-90 days old, 20%; and over 90
days old, 40%. 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
+
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-25
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
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-26
HANDOUT 6 – 3 SOLUTION
ESTIMATION AND RECORDING OF UNCOLLECTIBLE ACCOUNTS –
AGING OF ACCOUNTS RECEIVABLE METHOD
Part 1 – Vandalia reported $300,000 in sales during Year 2. The company’s allowance for doubtful
accounts has an unadjusted credit balance of $12,000 at December 31, Year 2. At that time, Vandalia’s
accountant 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
Other customers
136,800
88,100
26,900
9,800
12,000
Totals
$160,000
$100,000
$30,000
$12,000
$18,000
x Probable bad debt loss rates
Subtotals by aging category
$ 3,000
$ 2,400
$ 7,200
Based on prior experience, Vandalia’s accountant estimates the probable bad debt loss rates for each
category to be as follows: 0-30 days old, 4%; 30-60 days old, 10%; 60-90 days old, 20%; and over 90
days old, 40%. 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
+
Dec. 31
End. Bal.
12,000
Beg. Bal.
Dec. 31
16,600
End. Bal.
Allowance
–4,600
Bad Debt
–4,600
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-27
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.
Calculation:
Estimated ending balance in Allowance for Doubtful Accounts
$ 16,600
Plus debit balance in Allowance for Doubtful Accounts before adjustment
400
Bad Debt Expense for the year
Bad Debt Expense (+E, –SE)
Ensure the equation still balances and debits = credits
Assets
=
Liabilities
+
End. Bal.
Beg. Bal.
End. Bal.
Allowance
for
–17,000
Bad Debt
Expense
–17,000
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-28
HANDOUT 6 – 4
BANK RECONCILIATION
Information from the records and bank statement and of Matrix, Inc. as of July 31 is set forth below
Cash balance per bank, July 31
$9,610
Cash balance per general ledger, July 31
7,430
Check mailed to the bank for deposit that had not reached the bank by July 31
July interest earned per bank statement
Part A
Prepare the bank reconciliation for Matrix, Inc.
Matrix, Inc.
Bank Reconciliation
July 31
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-29
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
6-30
HANDOUT 6 – 4 SOLUTION
BANK RECONCILIATION
Information from the records and bank statement and of Matrix, Inc. as of July 31, Year 1, is set forth
below
Cash balance per bank, July 31
$9,610
Cash balance per general ledger, July 31
7,430
Outstanding checks at July 31
2,417
Check mailed to the bank for deposit that had not reached the bank by July 31
NSF check (from a customer for a payment on account) returned by bank
Deposit by Acme Company erroneously credited by the bank to our account
Part A
Prepare the bank reconciliation for Matrix, Inc.
Matrix, Inc.
Bank Reconciliation
July 31
Bank Statement
Books
Ending cash balance per bank statement
Ending cash balance per books
$7,430
Additions:
Additions:
Deposit in transit
Interest
Deductions:
Recording error check 781
Bank error
Deductions:
Outstanding checks
(2,417)
NSF check
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
July 31
Cash (+A)
30
Interest Revenue (+R, +SE)
30
July 31
Cash (+A)
28
Accounts Payable (+L)
28
Accounts Receivable (+A)
Cash (–A)
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-31
HANDOUT 6 – 5
BANK RECONCILIATION
Prepare the bank reconciliation for Donna’s Day Care using the following information:
Cash balance per bank, June 30
$5,586
Cash balance per general ledger, June 30
5,055
Deposit in transit, June30
June interest earned per bank statement
Part A
Prepare the bank reconciliation for Donna’s Day Care.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-32
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
6-33
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
$5,586
Cash balance per general ledger, June 30
5,055
Outstanding checks, June 30
Deposit in transit, June 30
NSF check (from a customer for a payment on account) returned by bank
June interest earned per bank statement
Part A
Prepare the bank reconciliation for Donna’s Day Care.
Donna’s Day Care
Bank Reconciliation
June 30
Bank Statement
Books
Ending cash balance per bank statement
Ending cash balance per books
$5,055
Additions:
Additions:
Deposit in Transit
Interest
Deductions:
Deductions:
Bank error
Recording error check 800
Outstanding checks
(1,816)
NSF check
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
June 30
Cash (+A)
15
Interest Revenue (+R, +SE)
15
June 30
Accounts Payable (–L)
Cash (–A)
Accounts Receivable (+A)
Cash (–A)
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-34
HANDOUT 6 – 6
SALES JOURNAL ENTRIES
On March 3, Gooddeal.com sold merchandise for $2,500, terms 2/10 n/30. Prepare the journal entry.
Debit and credit the accounts affected
Mar. 3
Debit and credit the accounts affected
Mar. 6
Debit and credit the accounts affected
Mar. 8
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-35
HANDOUT 6 – 6 SOLUTION
SALES JOURNAL ENTRIES
On March 3, 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
Acct Rec.
Sales
The customer paid for the merchandise on March 6, taking advantage of the permitted discount. Prepare
the journal entry.
Debit and credit the accounts affected
Mar. 6
Cash (+A) [2,500 × 98%]
2,450
Sales Discounts (+XR, –SE) [2,500 × 2%]
50
Accounts Receivable (–A)
2,500
Ensure the equation still balances and debits = credits
Cash
Acct Rec.
Debit and credit the accounts affected
Mar. 8
Sales Returns and Allowances (+XR, –SE)
1,250
Cash (–A) [2,500 × 50%]
1,250