Answer:
a. 1. Debit Accounts receivable $180,000
Credit Sales $180,000
2. Debit cash $125,000
Credit Accounts receivable $125,000
3. Debit Sales return $20,000
Credit $20,000
4. Debit Provision for bad debts expense $35,000
Credit Accounts receivable $35,000
5. Debit Accounts receivable $ $2,500
Credit Provision for bad debts expense $2,500
Debit Cash $2,500
Credit Accounts receivable $2,500
B. Debit Bad debts expense $27,500
Credit provision for bad debt expense $27,500
Explanation:
1. Sale on account will increase the accounts receivable. So we have to debit accounts receivable and credit to sales in the amount of $180,000
2. Collections will decrease the accounts receivable due payments made by the customer. So we have to debit cash and credit accounts receivable by $125,000
3. Sales return is a contra asset account that will decrease the accounts receivable and also the net sales. So we will debit sales return and credit accounts receivable in the amount of $20,000
4. Write offs will decrease the provision for bad debts account as well as the accounts receivable accounts by $35,000
5. Recovery of bad debts previously written off has no effect in accounts receivable but will increase the provision for bad debts due to reversal of entry previously made. First, we will reverse the original written off entry. Debit Accounts receivable and credit provision for bad debts expense in the amount of $2,500. Then we will record the collection by debiting cash and crediting accounts receivable in the amount of $2,500
B. Let’s determine the balance of accounts receivable first,
Beg. $275,000 + 180,000 sale on account - 125,000 collection - 20,000 sales return - 35,000 write-off = $275,000
Therefore, $275,000 x 10% = $27,500
Entry:
Debit Bad debts expense $27,500
Credit provision for bad debts expense $27,500
