Answer:
The Underwood Corporation
Journal Entries
June 12, 2021:
Debit Accounts Receivable $41,000
Credit Service Revenue $41,000
To record provision of services to customers on account
Sept 17, 2021:
Debit Cash Account $25,000
Credit Accounts Receivable $25,000
To record cash receipt from customers
Dec. 31, 2021:
Debit Uncollectible Expense $7,200
Credit Allowance for Doubtful Accounts $7,200
To record allowance for doubtful accounts.
March 4, 2022:
Debit Accounts Receivable $56,000
Credit Service Revenue $56,000
To record provision of services to customers on account.
May 20, 2022:
Debit Cash Account $10,000
Credit Accounts Receivable $10,000
To record cash receipts from customers.
July 2, 2022:
Debit Allowance for Doubtful Accounts $6,000
Credit Accounts Receivable $6,000
To record write-off of uncollectibles.
Oct. 19, 2022:
Debit Cash Account $45,000
Credit Accounts Receivable $45,000
To record cash receipts from customers.
Dec. 31, 2022:
Debit Uncollectible Expense $3,750
Credit Allowance for Doubtful Accounts $3,750
To bring the allowance for doubtful accounts to $4,950
b) Calculation of Net Realizable Value of Accounts Receivable:
2021 2022
Accounts Receivable $16,000 $11,000
Less: Allowance for Uncollectible Accounts $7,200 $4,950
Net Realizable Value $8,800 $6,050
Explanation:
a) Services provided to customers on account increase the accounts receivable and the Service Revenue accounts by the same amount.
b) Cash Receipts from customers on account decrease the accounts receivable and increase the Cash Account by the same amount.
c) Allowance for Uncollectible (Doubtful) is a provision made to cover the risk of credit sales. The account is a contra account to the Accounts Receivable and is increased or reduced accordingly depending on the estimated allowance. Write-off of debts deemed uncollectible is done in this account.
d) The net realizable value of accounts receivable is the balance of accounts receivable less the allowance for uncollectible at the end of the period.
