Make The Necessary Entry In General Journal Form

Make The Necessary Entry In General Journal Form Under Each Of The Fol

Make the necessary entry in general journal form under each of the following assumptions. Show calculations for the amount of each adjustment and the resulting net realizable value. Current fiscal year ending December 31 the balance of Accounts Receivable for Yang's Gift Shop was $30,000. Credit sales for the year were $355,200. 1. Allowance for Bad Debts has credit balance of $300. a. The percentage of sales method is used and uncollectible accounts are estimated to be 2.0% of credit sales.

Paper For Above instruction

Yang's Gift Shop employs the percentage of sales method to estimate uncollectible accounts, which necessitates adjusting its allowance for bad debts at the end of the fiscal year. The calculation begins with determining the estimated uncollectible amount based on total credit sales, adjusting the Allowance for Bad Debts accordingly, and reflecting this in the general journal entry.

First, the estimated uncollectible accounts are calculated as 2.0% of the credit sales for the year:

Estimated Uncollectible Accounts = 355,200 x 0.02 = $7,104

Since the Allowance for Bad Debts currently has a credit balance of $300, the adjustment required is the difference between the estimated uncollectibles and the existing balance:

Required Adjustment = $7,104 - $300 = $6,804

This adjustment increases the Allowance for Bad Debts to the estimated uncollectible amount, reflecting the company's estimate of the amount it will not collect from its outstanding receivables. The journal entry for this adjustment is as follows:

Debit: Bad Debts Expense ...... $6,804


Credit: Allowance for Bad Debts ...... $6,804

After recording the adjustment, the updated balance of the Allowance for Bad Debts will be:

Previous balance: $300

Adjustment: $6,804

New balance: $7,104

This new balance accurately reflects the estimated uncollectible amount based on sales, thereby improving the accuracy of the company's accounting for receivables. The net realizable value of accounts receivable is calculated by subtracting the Allowance for Bad Debts from the total accounts receivable:

Net realizable value = $30,000 - $7,104 = $22,896

This figure represents the amount Yang's Gift Shop realistically expects to collect from its receivables after accounting for estimated bad debts.

References

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