Learning Objective:

Concept of Allowance for bad debts.

Income statement approach.
Balance sheet approach.

No. Q No. Page No.

1 8-2 390
2 8-4 390
3 8-5 391
4 8A-2 393

Q No.1
Ahmed completed following transactions during first year of operation.

Credit sales during year Rs.500,000

Cash sales Rs.125,000
Collection from customer Rs.375,000
Sales return( assumed on credit) Rs.10,000
Company estimate 5% bad debts on ending A/c Receivable balance.
Required:
 Pass journal entries for above transactions.
 Pass adjusting and closing entries
 Show balance sheet at the end of year.

Q No.2
Company estimate allowance for bad debts at 5% of year end A/c Receivable balance.
A/c Receivable on Jan 1,2005 Rs.100,000 and allowance for bad debts showed a credit
balance of Rs.4200. During the year 2005 following transactions were completed.

Total sales (including cash sales Rs.50,000) Rs.400,000

Sales return and allowances Rs.10,000
Sales discount Rs.5000
One customer account showing balance of Rs.7500 from which he is unable to pay
Rs.2500 and balance amount paid by him, company decided to close his account.
Cash collected from customer account Rs.335,000
One customer whose account had been written off in 2003 now paid Rs.500.
Required:
 Pass journal entries for above transactions.
 Pass adjusting and closing entries
 Show balance sheet at the end of year
Q No.3
Zafar enterprises provided following information for the year 2005.

A/c Receivable on Jan 1,2005 Rs.100,000

Allowance for bad debts on Jan 1, 2005 5000

Transactions during the year are as follows:

 Sales during the year Rs.550,000 including cash sales of Rs.50,000.
 Collections during the year Rs.400,000.
 Customer account written off Rs.3000
 One customer paid 40% of his account balance and remainder was considered
worthless. Total amount due on customer was Rs.4000.
 Firm estimated bad debts 5% of year end A/c Receivable balance.
Required:
As given in Q No.2

Q No.4. Star Company follows the income statement approach to estimating

uncollectible account expense. For several years the company has computed the
charge to uncollectible accounts expense as 1% of net sales. All sales are made on
credit. The following data appeared in the accounting records at Dec 31 2001, before
adjustments.

Account Debit Credit

Sales $5,360,000
Sales Return & Allowances $200,000
Sales Discounts $160,000
Allowance for Doubtful Accounts
$7,600

On January 12 2002, the company wrote off a $4,800 account receivable from
John Brown, which was determined to be uncollectible.

You are required to

(A) Prepare journal entries of the above transactions.
(B) Prepare adjusting entry to record the estimated uncollectible account
expense at December 31 2001 and the write off of the Brown receivable
on Jan 12 2002. (5)