Answer:
To record cash received on Accounts Receivable
Debit: Cash 140,621
Debit: Sales Discount 2079
Credit: Accounts Receivable 142,700
Bad Debts Recovered
Part 1
Debit: Bank 5,920
Credit: Bad Debts Recovered Account 5,920
Part 2
Debit: Bad Debts Recovered Account 5,920
Credit: Profit & Loss Account 5,920
Customer Account written off
Debit: Bad Debts 20,900
Credit: Accounts Receivable 20,900
Allowance for Doubtful Accounts(Increase in Allowance[23200-20700])
Debit: Allowance for Doubtful Debts Accounts 2500
Credit: Accounts Receivable 2500
Explanation:
1. Accounts receivable of $142,700 were collected including accounts of $69,300 on which 3% sales discounts were allowed.
3% on 69,300 was calculated to arrive at 2,079
2. $5,920 was received in payment of an account which was written off the books as worthless in 2016.
This was an account already written off as Bad debt. The bad debt entry initially posted would have affected the Profit and Loss. Two journals were needed to recover it from the Bad debt account and recognise it as income again.
3. Customer accounts of $20,900 were written off during the year.
This was an entry recorded directly as Bad debt account.
4.At year-end, Allowance for Doubtful Accounts was estimated to need a balance of $23,200.
This was an increase on the previous balance. As such Accounts Receivable is decreased while Provision for Doubtful debt is increased with the difference.
