ACC HW W4 - HOMEWORK PDF

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WEEK 4 HOMEWORK Questions: 6.10. (a) 1- Postings are generally made daily to the subsidiary ledger. 2- Postings are made in total at the end of the month to the control accounts. (b) A control account is a general ledger account that summarizes subsidiary ledger data. Subsidiary ledger accounts keep track of specific account activity. A subsidiary ledger is an addition to the general ledger. 6.11. The total in the ledger will not be equivalent with the total in the journal. Additionally, if someone goes through all of the information, they might recognise the error made in the posting.

Brief exercises: 7.7 a) Accounts Receivable = $500,000 Expected Uncollectible = 1% of Accounts Receivable Expected Uncollectible = 1%* $500,000 Expected Uncollectible = $5,000 Allowance for Doubtful Debt = $3,000 Credit The bad debts expense = (Accounts receivable ending balance * % estimated as uncollectible) - Existing credit balance in allowance of doubtful accounts = 500,000 * 1/100 – 3000 = $2,000 Dec. 31

Bad debts expense Allowance for doubtful accounts

b) Bad debts expense (500000*1%+800) Allowance for doubtful debts

$2,000 $2,000

$5,800 $5,800

7.8. (a)

Bad debt account To Provision for doubtful bad debt (To record bad debt expenses)

$40,000 $40,000

(b) Current assets Cash

$90,000

Account receivable

$600,000

Less: Provision for bad bed debt

$40,000

$560,000

Prepaid expenses

$13,000

Inventory

$130,000

Total current assets

$793,000

Exercises: 6.2 Below stated five principles of the internal control are lacking here: 1. Duties segregation: Here accounting work as well as payment is made by Peter. Hence, there is huge chance of possibility of misappropriation. 2. Maintain records: No proper requirement for wheels has been actually raised by production department through preparing proper production schedule. There is not at all any record of the production schedule. 3. Responsibilities of establishment: Proper allocation of authority & responsibility ensures that all activities are undertaken as per the established policies as well as guidelines. 4. Independent check: The supplier was not at all selected by the systematic process. There is lack of checklist which includes criteria which must be followed while selecting supplier. No other supplier is asked to submit their bid. 5. Physical Control: Inventory of wheel is not counted when they are received. 6.3 Tessa Ltd. a- $261650. $200000 (Beginning balance) + $125150 (Debit from sales journal) less $635000 credit from cash receipts journal. b- $48430 $45000 (Beginning balance) + $27180 (credit from purchase journal) less $23750 dedit from cash payments journal. c- $125150 in the sales journal (column total) would be posted to the credit side of the sales account and debit side of the accounts receivable account in the general ledger. d- $63500 in the cash receipts journal (column total) would be posted to the credit side of the accounts receivable in the general ledger.

7.7 a) Accounts receivable Current 1-30 days past due 31-90 days past due Over 90 days

b) Mar 31

Amount $65000 $12600 $8500 $6400

% 2.0 5.0 30.0 50.0

Estimated uncollectable $1300 $630 $2550 $3200 $7680

Bad debts expense Allowance for doubtful debts ($7680-$1600)

$6080 $6080

c) The total balance of receivables increased from 2018 to 2019. However, the fact that each of the 3 categories of older accounts increased during 2019 ie; the customers are taking longer to pay which will likely increase bad debts. The cause of the change needs to be investigated.

PSA: 7.7 a) $2900 will be the amount of bad debts expense. b) 5% of accounts receivable at 31 December 2019 = 5% * $46000 = $2300 $2300 - $1600 = $700 c) $2300 + $1150 = $3450 d) It violates the matching principle, overstates the accounts receivable, mismatches the expenses and states inaccurate profits.

PSB: 7.8 a) Shine Ltd. uses Allowance method for accounting of bad debts. As by looking trial balance given, we can see that there is already an account of Allowance for doubtful debts with Credit balance of $1500. b) Adjusting entry at 30 June 2019 to record bad debts expense Uncollectable advances: $16,750 Less: Opening credit balance: $1500 Adjustment need to be made: $16,750 - $1,500 = $15,250 Bad debt expense account debit $15,250 Allowance for doubtful debts credit $15,250

c) Adjusting entry at 30 June 2019 to record bad debts expense if there is debit balance instead of credit balance: Usually the Provision or allowances have credit balance, in rare cases when it have debit balance to give complete effect we need to add that part too in expense: Uncollectable advances: $16,750 Add: Opening credit balance: $1500 Adjustment need to be made: $16,750 + $1,500 = $18,250 Bad debt expense account debit $18,250 Allowance for doubtful debts credit $18,250 d) Write off entry July 2019, a $4500 account receivable is written off as uncollectable:(using allowance method) Allowance for doubtful debts debit $4,500 Account receivable credit $4,500 e). Write off entry July 2019, a $4500 account receivable is written off as uncollectable: (using direct write-off method): Bad debt expense account debit $4500 Account receivable credit $4,500 f) Allowance for doubtful debt is simply like a provision for future expected losses. We are booking expenses by foreseeing it just to avoid sudden impact on profits at the time of real write off. As in (e) we can see the P&L has taken impact of $4,500 whereas in (d) it has not, because in (d) the impact has been taken in systematic way in previous months. While presenting it in financials the allowances for doubtful advance is deducted from Accounts receivables to show true net balance of accounts receivables....