Accountint Exercise 6.1 (Accounting for Advanced Accruals)
Allowance method of accounting for bad debts.
At the end of 20X7 DMS Company had such ending balances of ledger accounts:
- Cash - $500
- Accounts Receivables - $800
- Allowance for Doubtful Debts - 0
- Contributed Capital - $300
- Retained Earnings - $1,000
- Bad Debts Expense - 0.
The business owner estimated that $120 of receivables would be uncollectible in the next accounting period. As was expected, in 20X8 some clients refused to pay the amounts due and in this connection $70 of receivables was written-off. However, in a while, one client (who was anticipated not to pay) returned and agreed to pay $30 she owed. In addition, at the end of 20X8 the owner made a prediction that 15% of accounts receivable balance would not be collected.
Required:
Provide journal entries and T-accounts that relate to the exercise.
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