Accounting Practices 501 Chapter 8 Balance Day Adjustments (Bad Debts)
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Accounting Practices 501 Chapter 8 Balance Day Adjustments (Bad Debts)
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Transcript of Accounting Practices 501 Chapter 8 Balance Day Adjustments (Bad Debts)
Accounting Practices 501
Chapter 8
Balance Day Adjustments(Bad Debts)
Credit Sales
Ch8D - Bad debts 2
Why would a business sell on credit?
Many entities rely on credit sales as basis of their operations
To generate more sales
Credit Sales
Ch8D - Bad debts 3
What would the cost be of selling on credit?
Bad Debts!
Many entities rely on credit sales as basis of their operations
Accounts Receivable
Ch8D - Bad debts 4
We can now look at the accounting entries for Bad Debts
Back to the Accounting Equation
Ch8D - Bad debts 5
Sold goods on credit to Mrs. Shopalot for $9,200
Accounts Receivable+9,200
Sales
+8,000+1,200
GST collected
Back to the Accounting Equation
Ch8D - Bad debts 6
Accounts Receivable+9,200
Sales
+8,000+1,200
GST collected
Mrs. Shopalot cannot repay half of her debt and a decision is made to write it off as irrecoverable
Back to the Accounting Equation
Ch8D - Bad debts 7
Accounts Receivable+9,200
Sales
+8,000+1,200
GST collected
We create a Bad Debt expense account (if there isn’t already an existing one) and write the amount off
Bad Debts
-4,600
+4,000
Half of the GST Collected, recorded at the time of the sale, will have to be reversed
+600
GST paid
Back to the Accounting Equation
Ch8D - Bad debts 8
Accounts Receivable+9,200
Sales
+8,000+1,200
GST collected
Bad Debts
-4,600
+4,000
+600
GST paid
Let’s do the General Journal entry for the Bad Debts
Back to the Accounting Equation
Ch8D - Bad debts 9
Accounts Receivable+9,200
Sales
+8,000+1,200
GST collected
Bad Debts
-4,600
+4,000
+600
GST paid
General JournalDate
Account Titles
Ref no Debit Credit31/3 Bad Debts 4,000
Acc Receivable (Mrs Shopalot) 4,600
Being entry to write off half of Mrs Shopalot’s debt
GST paid 600
Ch8D - Bad debts 10
General JournalDate
Account Titles
Ref no Debit Credit31/3 Bad Debts 4,000
Acc Receivable (Mrs Shopalot) 4,600
Being entry to write off half of Mrs Shopalot’s debt
GST paid 600
Mrs. Shopalot’s account in the Subsidiary Ledger will be updated and the Accounts Receivable control account in the General Ledger will be updated
What about Bad Debts recovered?
Ch8D - Bad debts 11
It sometimes happens that Bad Debts are recovered.
What then?
Back to the Accounting Equation
Ch8D - Bad debts 12
Mrs. Shopalot inherits some money and is able to repay her debt that was written off in the previous accounting period
Back to the Accounting Equation
Ch8D - Bad debts 13
Accounts Receivable
Bad debts recovered
GST collected
Firstly we have to reinstate her debt of $4,600 and then record her payment
+4,600 +4,000
+600
Back to the Accounting Equation
Ch8D - Bad debts 14
Accounts Receivable
Bad debts recovered
GST collected
+4,600 +4,000
+600
Let’s do the General Journal entry
Back to the Accounting Equation
Ch8D - Bad debts 15
Accounts Receivable
Bad debts recovered
GST collected
+4,600 +4,000
+600
General JournalDate
Account Titles
Ref no Debit Credit31/3 Acc Receivable (Mrs Shopalot) 4,600
Bad debts recovered 4,000
Being entry to reinstate Mrs Shopalot’s debt previously written off
GST collected 600
Back to the Accounting Equation
Ch8D - Bad debts 16
Now her payment of $4,600 will be recorded in the Cash Receipts Journal
General JournalDate
Account Titles
Ref no Debit Credit31/3 Acc Receivable (Mrs Shopalot) 4,600
Bad debts recovered 4,000
Being entry to reinstate Mrs Shopalot’s debt previously written off
GST collected 600
Back to the Accounting Equation
Ch8D - Bad debts 17
General JournalDate
Account Titles
Ref no Debit Credit31/3 Acc Receivable (Mrs Shopalot) 4,600
Bad debts recovered 4,000
Being entry to reinstate Mrs Shopalot’s debt previously written off
GST collected 600
Date
Cash Receipts Journal
Details Ref Bank
Acc Rec
Acc Rec (Mrs Shopalot)
4,600 4,600
GST collected
Subsidiary Ledger account of Mrs Shopalot
Ch8D - Bad debts 18
Date
Accounts Receivable Subsidiary ledger
Details Ref no Bal
Mrs ShopalotSales 9,200 Dr
Bad Debts 4,600 4,600Dr
Dr Cr
9,200
Mrs Shopalot’s ledger account is now shown
Subsidiary Ledger account of Mrs Shopalot
Ch8D - Bad debts 19
Date
Accounts Receivable Subsidiary ledger
Details Ref no Bal
Mrs ShopalotSales 9,200 Dr
Bad Debts 4,600 4,600Dr
Dr Cr
9,200
Bad Debts recovered 4,600 4,600Dr
Cash receipts 4,600 NIL
Cash receipts 4,600 NIL
Let’s say that she paid the outstanding amount owed
