The Stellar Retailing Company uses the allowance method to account for uncollectible accounts. In the past, when the firm was smaller, the direct write-off method was used. But now, following a considerable increase in credit sales, the firm has also experienced an increase in bad debts. The firm is able to use past information about uncollectibles to justify the use of the allowance method. For the most recent year (2012), the firm has developed the following data for analysis.

 The Stellar Retailing Company uses the allowance method to account for uncollectible accounts. In the past, when the firm was smaller, the direct write-off method was used. But now, following a considerable increase in credit sales, the firm has also experienced an increase in bad debts. The firm is able to use past information about uncollectibles to justify the use of the allowance method. For the most recent year (2012), the firm has developed the following data for analysis.

Data from the December 31, 2011 Stellar Retailing Company balance sheet follow:

Accounts receivable    $300,000
Allowance for uncollectible accounts    25,000
Data for 2011    
Credit sales    $3,800,000
Cash sales    500,000
Sales returns and allowances (granted before customer remittance)    450,000
Accounts written off    100,000
Collections on accounts written off in 2011    8,000
Ending balance, accounts receivable    400,000
Ending balance, allowance for uncollectible accounts    30,000
Using the information above, provide the details that would have been posted to the following accounts during 2012. Enter the appropriate account titles in column A by clicking the associated cell and selecting the desired account titles from the list provided. Account titles may be used any number of times or not at all. In the same manner select and enter the appropriate amounts in column B. Use negative values to indicate the amount is subtracted from the account total.

 

Rationale for Accounts Receivable:

Accounts Receivable beginning balance plus net Credit sales (credit sales - credit sales returns and allowances) less write offs of accounts receivable (see journal entry below) less cash collected on account equals ending accounts receivable.

DR: Allowance for uncollectible accounts 100,000

    CR: Accounts receivable 100,000

Rationale for Allowance for uncollectible accounts:

Allowance for uncollectible accounts has a normal credit balance. Beginning balance less write offs (see journal entry above) plus collections on accounts previously written off and from bad debt expense (see journal entries below) equals the ending balance.

DR: Cash 8,000

    CR: Accounts receivable 8,000

DR: accounts receivable 8,000

    CR: Allowance for uncollectible accounts 8,000

DR: Bad debt expense 97,000

    CR: Allowance for uncollectible accounts 97,000

 

Thanks