The xyz company informs that the Account receivable balance carried forward from
ID: 2533023 • Letter: T
Question
The xyz company informs that the Account receivable balance carried forward from 31 december 2017 was $18,700(GST 12% included)
The Business uses Direct write off mathod to record bad debts.on21 january 2016 its finally diceded to writeoff $ 2,700 in account receivable balance as bad debt becoz its over due more than 2 years.
A) write general journal entry for account written off
b) discuss what is conceptually wrong with the direct write off approach in accounting for bad debts which is being use by the xyz company.
c.)Business acoountant advise business uses provision mathod in accounting bad debts.following infor mation by Accountant.
1.)if business decides percentage mathod the accountant evaluate 3% should use. business had net credit sales total of 32400 gst excluded. for the year 2017.
2.)if business decided to use Aging mathod the Account evaluated that of 2 % account receivable balance has to be estimated as doubt ful debt.Account receivable balance at 31 dcember 2017 is 10,700 (Gst included 12%)
Explanation / Answer
A. Account Debit Credit Bad Debt Expense 2700 Accounts Receivable 2700 B. Bad Debt expense is being recorded and charged to PnL in the year in which management realized that money can not be received. However, this should be charged to PnL in the year to which credit sales realtes C1. Account Debit Credit Bad Debt Expense 972 Allowance for bad debt 972 (32400*3%) C1. Account Debit Credit Bad Debt Expense 214 Allowance for bad debt 214 (10700*2%)
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