On 1 July 2008, Morton Limited had accounts receivable of $53000 and an allowanc

Question

On 1 July 2008, Morton Limited had accounts receivable of $53000 and an allowance for doubtful debts of $3100. During the year ended 30 June 2009, credit sales amount to $ 432 500 and cash collected from customers was $417 400. At end of the financial year, the credit manager decided that accouts totalling $1200 should written off as bad debts and the allowance for doubtful debts increased to $4200.
1. What was the estimated collectable value of accounts recivable as at 30 June 2009?
2. What was the amount of the bad debts expense for the year ended 30 June 2009?
3. What are the main reasons for using the allowance method of accouting for bad debts rather than the direct write off method?

Explanation / Answer

1. A/R 67,300 less Allowance for doubtful accounts 4,200= 63,100 Net realizable value. 2. Bad debt expense was 2,300. 3. Advantages of allowance method a) It's GAAP; the direct writeoff method isn't. b) Better matching of revenues and expenses.

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