Reference no: EM132562163

Question - At 31 December 2019, the trial balance of Lexington Pty Ltd contained the following amounts before adjustment. These accounts all have normal balances.

Accounts Receivable 400,000

Allowance for Doubtful Debts 1,000

Sales 950,000

Required -

a) Prepare the adjusting entry at 31 December 2019, for bad debts expense assuming that the ageing schedule indicates that $11750 of accounts receivable will be uncollectible. Ignore narrations for all entries.

b) During the next month, January 2020, a $5,000 account receivable is written off as uncollectible. Prepare the journal entry to record the write -off.

c) Assume that Lexington uses the direct write-off instead of the allowance method in accounting for uncollectible accounts. Write off the uncollectible account in b) using this method.

What type of account is the allowance for doubtful debts? How does it affect how accounts receivable is reported in the statement of financial position at the end of the accounting period?