How to calculate bad debt expense with accounts receivable. These types of questions are asked many times in the examinations of B Com, CA, ICMA, ICMAI, CPA, etc. So, the following exercise will help you greatly in mastering this topic.
Question
The accountant of Fari &Co. provided the following:
- Account Receivable opening balances Rs.20,000.
- Allowance for bad debts opening bal.Rs.2,000.
During the year following transactions were completed:
(a) Cash Sales Rs.144,000.
(b) Credit Sales Rs.156,000
(c) Collection from customers Rs.80,000
(d) Sales returns and allowances Rs.1,400.
(e) Customers accounts written off Rs.3,000
(f) Previously written off account recoverod Rs.1,400
(g) At end of the period a customer’s accounshowed,credit balance Rs.4,000.
REQUIRED:
Record bad debts expens ,estimating allowance for bad debts @5{1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} on ending balance of A/c Receivable.
Solution
ACCOUNTS RECEIVABLE LEDGER
| DEBIT | CREDIT | ||
| Balance | 20,000 | Cash | 80,000 |
| Sales | 156,000 | Sales Return | 1,400 |
| Allowance for bad debt | 1,400 | Allowance for bad debt | 3,000 |
| Advance from customer | 4,000 | Cash | 1,400 |
| Balance | 95,600 | ||
| 181,400 | 181,400 |
Allowance for BAD DEBTS
| DEBIT | CREDIT | ||
| Accounts Receivable | 3,000 | Balance | 2,000 |
| Accounts Receivable | 1,400 |
CALCULATION
| Accounts receivable balance | 95,600 |
| Uncollectible rate | 5{1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} |
| Uncollectible amount (95,600×5{1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c}) | 4,780 |
| Less: Allowance for bad debts Credit Balance | 400 |
| Adjusted Balance | 4,380 |
ADJUSTING ENTRY
| Date | Particular | Debit | Credit |
| Dec 31 | Bad debt expense allowance for bad debts | 4380 | 4,380 |