Page 396 - Accounting Principles (A Business Perspective)

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1. 2010 31 Uncollectible Accounts Expense (-SE) 11,250
Dec. Allowance for Uncollectible Accounts (-A) 11,250
To record estimated Uncollectible accounts for
the year.
2. 2011 15 Allowance for Uncollectible Accounts (+A) 750
Jan. Accounts Receivable—John Nunn (-A) 750
To write off the account of John Nunn as
Uncollectible.
3. Feb. 12 Accounts Receivable—John Nunn (+A) 750
Allowance for Uncollectible Accounts (-A) 750
To correct the write-off of John Nunn's account
on January 15.
12 Cash (+A) 750
Accounts Receivable—John Nunn (-A) 750
To record the collection of John Nunn's account
receivable.
b.
1. 2010 15 Notes Receivable (+A) 22,500
June Accounts Receivable—Stone Company (-A) 22,500
To record receipt of a note from Stone Company.
2. Sept 13 Accounts Receivable—Stone Company (+A) 23,175
Notes Receivable (-A) 22,500
Interest Revenue(+SE) 675
To record the default of the Stone Company note
of $22,500. Interest revenue was $675.
13 Allowance for Uncollectible Accounts* (+A) 23,175
Accounts Receivable—Stone Company (-A) 23,175
To write off the Stone Company as uncollectible.
*This debt assumes that Notes Receivable were taken into consideration when an allowance was established. If
not, the debit should be to Loss from Dishonored Notes Receivable.

Solution to demonstration problem B
a.
2009 1 Cash (+A) 9,883.33
0
Dec. Bank Discount ($10,000 X 0.07 X ' '/36)) (+A) 116.67
Notes Payable (+L) 10,000.00
31 Interest Expense (-SE) 58.33
Bank Discount (-A) 58.33
($10,000 X 0.07 X ^/36))
2010 30 Notes Payable (-L) 10,000.00
Jan. Interest Expense (-SE) 58.33
Bank Discount (-A) 58.33
Cash (-A) 10,000.00
b.
2010 2 Equipment (+A) 5,000.00
Feb 4 Notes Payable (+L) 5,000.00
Mar 2 Notes Payable (-L) 5,000.00
6 Interest Expense (-SE) 37.50
Cash (-A) 5,037.50
($5,000 X 0.09 X /360) = $37.50 675
30
Key terms
Accounts receivable turnover Net credit sales (or net sales) divided by average net accounts receivable.
Aging schedule A means of classifying accounts receivable according to their age; used to determine the
necessary balance in an Allowance for Uncollectible Accounts. A different uncollectibility percentage rate is
used for each age category.
Allowance for Uncollectible Accounts A contra-asset account to the Accounts Receivable account; it
reduces accounts receivable to their net realizable value. Also called Allowance for Doubtful Accounts or
Allowance for Bad Debts.
Bad debts expense See Uncollectible accounts expense.
Bank discount The difference between the maturity value of a note and the actual amount—the note's
proceeds—given to the borrower.

Accounting Principles: A Business Perspective 397 A Global Text