Reference no: EM132818122

Question - Accounting for bad debts

Hi-Fi sells electronic products. All sales are conducted on a credit basis and no cash discounts are granted. Ignore GST. The financial year ends on 30 June. The following information was extracted from the accounting records on 30 June 2020:

Sales $437,000

Sales returns and allowances $7,000

Cash collected $280,000

Debts to be written off $3,600

Allowance for doubtful debts beginning balance $2,100

Required - Assume that Hi-Fi uses the allowance method to account for bad debts. Management has estimated bad debts expense for each year at 1% of net credit sales.

1. 'The determination of the appropriate amount of the allowance for doubtful debts is a fairly complicated and onerous process. The method of determining the amount of the allowance by using a percentage of net sales is the obvious way to do it.' Discuss.

2. Provide the journal entry to write off bad debts on 30 June.

3. Provide the journal entry to record cash collected on 30 June.

4. Determine the amount of doubtful debts adjustment and provide the journal entry to record doubtful debts adjustment on 30 June.

5. Record the ledger account of Allowance for Doubtful Debts on 30 June.

6. Determine the amount of accounts receivables reported in the statement of financial position as at 30 June 2020 (show the calculation).