Tutorial 9

Tutorial 9 - BUSI1002 Chapter 9: Accounting for receivables...

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BUSI1002 Chapter 9: Accounting for receivables A. Valuing accounts receivable 1. Direct method Dr. Bad debts Cr. A/R When recovered Dr. A/R Cr. Bad debts / Bad debts recovered Dr. Cash Cr. A/R - Based on Matching 2. Allowance method A NOTE FOR THOSE STUDENTS WHO LEARNED ACCOUNTING AT HKCEE OR HKALE: You may realize that the journal entries you learnt in the past were a bit different from what you have learnt in this chapter. However, BOTH METHODS will yield the same total in the financial statements. Creation of allowance for doubtful debts (estimation) Dr. Bad debts Cr. Allowance for doubtful debts (contra asset – to be shown on the balance sheet) When bad debts are realized, Dr. Allowance for doubtful debts Cr. A/R When recovered: Dr. A/R Cr. Allowance for doubtful debts Dr. Cash Cr. A/R - Based on Conservatism How do we estimate bad debts - % of sales - % of receivable (final balance or ageing) Ex9-8(TB379) a. Expense is 2% of credit sales Dec. 31 Bad Debts Expense. ....................................................................... 6,000 Allowance for Doubtful Accounts. .......................................... 6,000 To record estimated bad debts [$300,000 x .02]. Dec. 31 Bad Debts Expense. ....................................................................... 7,000 Allowance for Doubtful Accounts. .......................................... 7,000 To record estimated bad debts [($300,000 + $400,000) x .01]. c. Allowance is 8% of accounts receivable Dec. 31 Bad Debts Expense. ....................................................................... 6,200 Allowance for Doubtful Accounts. .......................................... 6,200 By 1
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BUSI1002 To record estimated bad debts. * * Unadjusted balance. ....................................... $1,000 debit . Estimated balance ($65,000 x 8%). ............... 5,200 credit Required adjustment. ...................................... $6,200 credit Extract of balance sheet under these 3 methods A A/R 65000 Less ABD 5000 B A/R 65000 Less ABD 6000 C A/R 65000 Less ABD 5200 B. Notes (also called Bills in the UK / HK)
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This note was uploaded on 12/14/2011 for the course BUSI 1002 taught by Professor X during the Spring '11 term at CUHK.

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Tutorial 9 - BUSI1002 Chapter 9: Accounting for receivables...

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