chapter # 17a4accounting.weebly.com/uploads/7/1/2/8/7128209/17-receivable... · valuation of...

Chapter # 17 Valuation of Accounts Receivable

Principles of Accounting – B.Com Part – I

Sameer Hussain

www.a4accounting.weebly.com | www.facebook.com/a4accounting.net

Valuation of Accounts Receivable

Chapter # 17

www.a4accounting.weebly.com 52

Sameer Hussain

WHAT THE EXAMINER USUALLY ASK?

Computation of bad debts expense by income statement approach. Computation of bad debts expense by balance sheet approach. General Journal entries including adjusting and closing entries. Accounts receivable account and allowance for bad debts account. Partial Balance Sheet. Aging of accounts receivable.


Chapter # 17

Sameer Hussain Page 253

www.a4accounting.weebly.com

Chapter # 17

VALUATION OF

ACCOUNTS RECEIVABLE Bad debts

An amount owed by a debtor that is unlikely to be paid is called bad debts or uncollectible. The full amount should be written off to the income statement of the period or to a provision for bad debts as soon as it is foreseen.

Doubtful debt

An amount owed to an organization by a debtor that it might well not receive. A provision for doubtful debts may be created, which may be based on specific debts or on the general assumptions that a certain percentage of debtors’ amounts are doubtful. As the doubtful debt becomes a bad debt, it may be written off to the provision for doubtful debts or alternatively charged to the profit and loss account if there is no provision.

Provision for bad debts

A provision calculated to cover the debts during an accounting period that are not expected to be paid. It is also called allowance for bad debts.

Write off

To reduce to zero a debt that cannot be collected is known as writing off customer’s account.

Recovery of bad debts

Debts originally classed as bad debts and written off to the profit and loss account (or to a provision for bad and doubtful debts) but subsequently recovered either in part or in full. Bad debts recovered should be written back to the profit and loss account of the period (or to provision for bad and doubtful debts).

General journal entries

Entry to Record Merchandise Sold on Credit During the Period: Accounts receivable DR. (with the amount of receivable) Sales CR. (with amount of sales) (To record the merchandise sold on account) ----------------------------------------------------------------------------------------------------------------------

Entry to Record Discount Allowed to Customers: Sales discount DR. (with the amount of discount allowed) Accounts receivable CR. (with the amount of discount allowed) (To record the discount allowed to customers) ----------------------------------------------------------------------------------------------------------------------

Entry to Record Merchandise Returned by Customers: Sales return and allowance DR. (with the amount sales return) Accounts receivable CR. (with the amount of sales return) (To record the goods return by customers) ----------------------------------------------------------------------------------------------------------------------


Chapter # 17

www.a4accounting.weebly.com Page 254

Sameer Hussain

Entry to Record Cash Collected from Customers: Cash DR. (with the amount of cash collection) Accounts receivable CR. (with the amount of cash collection) (To record the cash collected from customers) ----------------------------------------------------------------------------------------------------------------------

Entry to Record Promissory Note Received from Customer Against Credit Sales: Notes receivable DR. (with the amount of notes receivable) Accounts receivable CR. (with the amount of notes receivable) (To record the discount allowed to customers) ----------------------------------------------------------------------------------------------------------------------

Entry to Record Advance from Customer / Over-Payment by Customer: Accounts receivable DR. (with the amount received in advance) Advance from customer CR. (with the amount received in advance) (To record the advance received from customer) ----------------------------------------------------------------------------------------------------------------------

Entry to Record Write – Off Customer’s Account: Allowance for bad debts DR. (with the amount written off) Accounts receivable CR. (with the amount written off) (To record the write off customer’s account) ----------------------------------------------------------------------------------------------------------------------

Entry to Record Recovery of Previously Written – Off Customer’s Account: Accounts receivable DR. (with the amount of recovery) Allowance for bad debts CR. (with the amount of recovery) (To record the recovery of previously written off customer’s account) ---------------------------------------------------------------------------------------------------------------------- Cash DR. (with the amount of cash collection) Accounts receivable CR. (with the amount of cash collection) (To record the cash recovered from customer) ----------------------------------------------------------------------------------------------------------------------

Entry to Record Bad Debts Expense for the Period: Bad debts expense DR. (with the amount of bad debts) Allowance for bad debts CR. (with the amount of bad debts) (To record the bad debts expense for the period) ----------------------------------------------------------------------------------------------------------------------

income statement approach (net credit sales)

The percentage-of-sales approach is useful if historical data shows a steady correlation between the amount of sales in a year and the sales from that year that eventually become bad debts. The relationship of bad debts to sales, a percentage, is multiplied by sales for the current year to estimate bad-debt expense. Bad-debt expense is increased by that amount, and the allowance for doubtful accounts is also increased by that amount. This method of estimating bad debts focuses on matching the expense with the sales that produce it.


Chapter # 17



Computation of bad debts expense –

income statement approach (net credit sales)

Total credit sales XXX Less: Sales return and allowances (XXX) Less: Sales discount (XXX) Net sales XXX Rate of bad debts XX% Bad debts expense for the year XXX

ILLUSTRATION # 1: (Bad Debts Expense by Income Statement Approach)

2005 Regular – UOK On Dec. 31, 2004 the following balances appeared in the trial balance of Zulfiqar & Co:- Accounts receivable Rs. 260,000 Sales 500,000 Allowance for bad debts (Dr.) 2,100 Sales returns & allowances 20,000 REQUIRED Prepare the journal entry to record the estimated bad debts expense at 5% of Net Sales.

SOLUTION # 1: Computation of Bad Debts Expense: Sales 500,000 Less: Sales returns and allowances (20,000) Net sales 480,000 Rate of bad debts 5% Bad debts expense for the period 24,000

ZULFIQAR & CO.

GENERAL JOURNAL Date Particulars P/R Debit Credit

31 Dec Bad debts expense 24,000 2004 Allowance for bad debts 24,000 (To adjust the bad debts expense for the period) 31 Dec Expense and revenue summary 24,000 2004 Bad debts expense 24,000 (To close the bad debts expense account)

Balance sheet approach (accounts receivable)

The percentage-of-receivables method relies on analyzing the age of existing receivables to estimate the amount that is uncollectible. The amount is the balance required in the allowance-for-doubtful-accounts contra-asset account. The bad-debt expense is whatever amount is necessary to produce that balance. Usually, the older the receivable, the more likely it is to become a bad debt. So, if the organization has many old receivables, it will need more in the allowance for doubtful accounts, producing a bigger bad-debt expense. This method of estimating bad debts focuses on getting a correct balance sheet value for receivables.


Chapter # 17


Sameer Hussain

Computation of bad debts expense –

Balance sheet approach (accounts receivable)

Accounts receivable at the end of year XXX Rate of bad debts XX% Allowance for bad debts closing at the end of year XXX Less: Allowance for bad debts opening balance (XXX) Add: Write – off (XXX) Less: Recovery XXX Bad debts expense for the year XXX

ILLUSTRATION # 2: (Bad Debts Expense by balance Sheet Approach)

1998 Private – UOK Iqbal & Sons provide allowance for uncollectible at 5% of A/R at end: - A/R balance Rs.10,500 and allowance for uncollectible Rs.2,000 on Jan. 1, 1997. During 1997 the following transactions were performed:

(1) Credit sales Rs.45,000. (2) Cash collected from customer Rs.20,000. (3) A customer’s account written off Rs.1,000. (4) Over payment by a customer Rs.800 which was included in the collection of A/R. (5) Sales discount Rs.600.

REQUIRED (i) Give journal entries to record above transactions. (ii) Adjusting entry for providing allowance for uncollectible. (iii) Prepare partial balance sheet.

SOLUTION # 2: IQBAL & SONS

GENERAL JOURNAL FOR THE PERIOD DECEMBER 1997

Date Particulars P/R Debit Credit 1 Accounts receivable 45,000 Sales 45,000 (To record the goods sold on account) 2 Cash 20,000 Accounts receivable 20,000 (To record the cash collected from customer) 3 Allowance for bad debts 1,000 Accounts receivable 1,000 (To record the write off customer’s account) 4 Accounts receivable 800 Advance from customer 800 (To record the advance received from customer) 5 Sales discount 600 Accounts receivable 600 (to record the discount allowed to customer)


Chapter # 17



Accounts Receivable 1 Jan 97 Balance 10,500 2 Cash 20,000 1 Sales 45,000 3 Allowance for bad debts 1,000 4 Advance from customer 800 5 Sales discount 600 21,600 31 Dec 97 c/d balance 34,700 56,300 56,300

1 Jan 98 b/d balance 34,700

Allowance for Bad Debts 3 Accounts receivable 1,000 1 Jan 97 Balance 2,000 31 Dec 97 c/d balance 1,735 31 Dec 97 Bad debts expense 735 2,735 2,735

1 Jan 98 b/d balance 1,735 Computation of Bad Debts Expense: Accounts receivable 34,700 Rate of uncollectible 5% Allowance for bad debts adjusted balance 1,735 Add: Write off customer’s account 1,000 2,735 Less: Allowance for bad debts unadjusted balance (2,000) Bad debts expense for the period 735

IQBAL & SONS

GENERAL JOURNAL FOR THE PERIOD ENDED 31 DECEMBER 1997

Date Particulars P/R Debit Credit 31 Dec Bad debts expense 735 1997 Allowance for bad debts 735 (To record the bad debts expense for the period) 31 Dec Expense and revenue summary 735 1997 Bad debts expense 735 (To close the band debts expense account)

IQBAL & SONS BALANCE SHEET

AS ON 31 DECEMBER 1997 Assets Equities

Accounts receivable 34,700 Advance from customers 800 Less: Allowance for bad debts (1,735) 32,965

AGING RECEIVABLES

A schedule of accounts receivable classified by due dates. An aging schedule is used to estimate bad-debt expense using the percentage-of-receivables approach. A probability of non-collection is applied to each total in each age group. The sum is the amount of bad debts on the books.


Chapter # 17


Sameer Hussain

ILLUSTRATION # 3: (Aging of Accounts Receivable)

1996 Private – UOK Following is the aging schedule of Fazal Company as of December 31, 1995:

Balance Not Yet Due Days Past Due 1 – 30 31 – 60 61 – 90 More than 90

40,000 20,000 10,000 5,000 3,000 2,000 Rates of estimated uncollected accounts:

Time Past Due Estimated Percentage Not yet due 2% 1 – 30 days 4% 31 – 60 days 20% 61 – 90 days 30% Over 90 days 50%

Allowance for bad debts account has a credit balance of Rs.1,200. REQUIRED

(i) Compute the amount of estimated uncollectible accounts and compute the bad debts expense.

(ii) Record the adjusting entry for bad debts expense. (iii) Prepare partial balance sheet.

SOLUTION # 3:

Computation of Bad Debts Expense): Accounts

Receivable Rate of

Uncollectable Uncollectable

Amount Not yet due 20,000 2% 400 1 – 30 days past due 10,000 4% 400 31 – 60 days past due 5,000 20% 1,000 61 – 90 days past due 3,000 30% 900 Over 90 days past due 2,000 50% 1,000 Allowance for bad debts adjusted balance 3,700 Add: Allowance for bad debts unadjusted (1,200) Bad debts expense for the period 2,500

FAZAL COMPANY GENERAL JOURNAL

Date Particulars P/R Debit Credit 31 Dec Bad debts expense 2,500 1995 Allowance for bad debts 2,500 (To record the bad debts expense for the period) 31 Dec Expense and revenue summary 2,500 1995 Bad debts expense 2,500 (To close the band debts expense account)

FAZAL COMPANY BALANCE SHEET

AS ON 31 DECEMBER 1995 Assets Equities

Accounts receivable 40,000 Less: Allowance for bad debts (3,700) 36,300


Chapter # 17



Practice questions

Question # 1: 2011 Private – UOK Rafiq & Co. has the following balances on Jan. 1, 2010: Accounts receivable – Control Rs.450,000 Allowance for bad debts Rs.7,500 During the year company completed the following transactions:

1. Total sales including 60% cash sales of Rs.500,000. 2. Sales discount Rs.10,000. 3. Collected cash from customers Rs.240,000. 4. One of the customer accounts receivable subsidiary ledger showed a credit balance of

Rs.5,000. REQUIRED

(1) Prepare adjusting journal entries if bad debts estimated @ ½ of 5% of net credit sales. (2) Prepare partial balance sheet.

Question # 2: 2012 Private – UOK XY Company has the following balances on January 1, 2009: Accounts receivable – control Rs.400,000; Allowance for bad debts Rs.5,000. During the year company completed the following transactions:

1. Of the total sales 20% is cash sales which amounts to Rs.80,000. 2. Sales discount Rs.10,000. 3. Advance from customer Rs.150,000.

REQUIRED (i) Prepare adjusting journal entries if allowance for bad debts is estimated @ ½ of 5%

of net credit sales. (ii) Prepare partial balance sheet as on December 31, 2009.

Question # 3: 1992 Private – UOK Following transactions and account balances are taken from the accounting records of Apex Auto Parts: Accounts Receivable balance at Jan. 01, 1991 Rs.120,000 and Allowance for Doubtful accounts balance (Cr) Rs.10,500. The transactions for the year ended Dec. 31, 1991 are as under:

(1) Sales on accounts Rs.560,000. (2) Sales Returns and Allowance on account Rs.20,000. (3) Sales Discount availed by customers Rs.10,000, and Cash collected from Accounts

Receivable amounted to Rs.350,000. (4) Worthless Accounts Receivable written off Rs.5,000. (5) Recovered previously written off Accounts Receivable Rs.8,500.

The Co. follows the income statement approach to estimating uncollectible expenses as 1% of net sales. REQUIRED

(i) Record the 5 transactions in general journal giving narration. (ii) Give an adjusting entry to record uncollectible expense at December 31, 1991. Show

Computations. Question # 4: 1994 Regular & Private – UOK Star Company makes allowance for bad debts at 2 ½ % of net Credit Sales on January 01, 1993 the Account Receivable account balances was Rs.100,000 and the Allowance for Bad Debts account showed a credit balance of Rs.3,000. During the year 1993 transactions relating to Account Receivable were as under:

(1) Total Sales (Including cash sales Rs.50,000). Rs.400,000. (2) Sales return and allowances Rs.10,000. (3) Sales discount allowed to customers Rs.5,000.


Chapter # 17


Sameer Hussain

(4) Customers account written off during the year Rs.2,500. (5) Cash collected from Customer’s account (Including Rs.400 from a customer previously

written off) Rs.335,400. (6) Credit balances in customers account Rs.10,000. (7) Promissory notes received from customers to apply on account Rs.5,000.

REQUIRED (a) Prepare Account Receivable account, Bad Debts expense account and Allowance for bad

debts account. Close and balance the accounts on December 31, 1993. (b) Prepare adjusting and closing journal entries on December 31, 1993. (c) Prepare a Partial Balance Sheet on December 31, 1993.

Question # 5: 1996 Regular – UOK The following balances have been taken from the books of Mr. Shaheryar on Dec. 31, 1995: Accounts receivable (1-1-1995) Rs. 40,000 Allowance for bad debts (1-1-1995) 1,000 Total sales on credit during the year 400,000 Sales returns on credit 80,000 An amount was granted as sales discount 20,000 Cash collection during the year from customers whom credit sales were made 100,000 REQUIRED

(i) Uncollectable account expense is estimated 0.25 of 10% of net sales on credit. (ii) Prepare partial balance sheet as on December 31, 1995.

Question # 6: 1995 Private – UOK The following balances available for Zubair Company as at 1.1.1996.

Accounts receivable Rs. 300,000 Allowance for doubtful accounts 16,000

During the year ended December 31, 1996 the following transactions were completed:- (a) Sales on account Rs.950,000 and for cash Rs.50,000. (b) Cash collection from customer’s Rs.550,000. (c) Customer’s account written off amount to Rs.10,000. (d) Previously written off accounts recovered Rs.8,000.

The company estimates the uncollectable expense at the rate of 2-1/2% of credit sales. REQUIRED

(i) Prepare entries in General Journal to record the above transactions. (ii) Prepare adjusting entry for uncollectable expense at the end of period.

Question # 7: 1997 Regular – UOK On 1st January 1996, the ledger of Sumera Ltd. showed a balance of Rs.112,800 in accounts receivable and credit balance of Rs.4,625 in allowance for bad debts account.

(1) Total sales Rs.250,000 (including cash sales Rs.117,500). (2) Sales returns and allowance Rs.15,000. (3) Sales discount Rs.6,000. (4) Customer’s account written off Rs.4,000. (5) Cash collected from customers Rs.175,000 (including Rs.1,800 previously written off).

REQUIRED (i) Compute allowance for bad debts if estimated at 3% of net credit sales. (ii) Record the above transactions and also the adjusting entry of bad debts allowance in the

journal. (iii) Prepare partial balance sheet.


Chapter # 17



Question # 8: 1998 Regular – UOK Fast Company reports the following transactions for the half year ended June 30, 1998:-

(a) Credit sales Rs.430,000. (b) Sales return allowance Rs.15,000. (c) Sales discount Rs.5,000. (d) A/c recovered Rs.4,000. (e) A/R written off Rs.12,000. (f) Advance by customers as known through the subsidiary ledger Rs.6,000. (g) Provide for bad debts @ 4% of sales.

REQUIRED Record the above transactions and give also the adjusting entries for bad debts. Question # 9: 1996 Private – UOK Following are the transactions of Ambar Company:

(i) Collected 5% of Rs.1,400 owed by Hi-light Company, bankrupt. Wrote off the remainder as worthless.

(ii) Received Rs.228 from Mr. Irfan, whose account has been written off two years earlier. (iii) Following accounts were written off as uncollectible:

Mr. Fahim Rs. 384 Star Co. 272 Sunlight Co. 566

(iv) Estimated bad debts at 1% of credit sales of Rs.52,400. Allowance for bad debts before adjustment was Rs.150 (Debit).

REQUIRED Record the above entries in the General Journal. Question # 10: 1993 Private – UOK The Zulfiqar Company estimates its bad debts expense to be 1% of Sales, Sales in 1992 were Rs.850,000. REQUIRED Prepare the journal entries for the following transactions: (1) The company prepared the adjusting entry for bad debts for the year ended Dec. 31, 1992. (2) On January 15, 1993 the company decided that the account for Ameer in amount of Rs.1,000

was uncollectable. (3) On February 12, 1993 Ameer’s cheque for Rs.1,000 arrived. Question # 11: 1993 Regular – UOK The general ledger of Ibrahim & Company is showing debit balance of Accounts Receivable Control Rs.18,000 of 50 Customers. The Subsidiary ledger is showing debit balances of 49 customers’ accounts and credit balance of Rs.2,000 of customer account. REQUIRED

(1) Compute the debit balance of 49 Customers accounts. (2) Assume that no other transaction has taken place with the customer having credit

balance except the transaction affecting the credit balance, give specific transaction taken place with the customer, and

(3) Prepare a partial Balance Sheet showing the above information only. Question # 12: 2001 Regular & Private – UOK During the year Junejo Sons wrote off worthless accounts of Rs.15,000 and recovered in full a previously written off account of Rs.5,000. At year-end the accounts receivable subsidiary ledger revealed a credit balance of Rs.1,000 in a customer’s account. REQUIRED Record the above facts in general journal.


Chapter # 17


Sameer Hussain

What does the following balance indicate? (i) A debit balance in allowance for bad debts account? (ii) A credit balance in a customer’s account?

Question # 13: 2001 Regular & Private – UOK On March 31, 2001 Musharraf Corporation Ltd. estimated allowance for bad debts at 10% of accounts receivable of Rs.90,000. REQUIRED Give adjusting entry in each of the following cases, the case requiring no entry be explained assuming that the allowance for bad debts account, prior to adjustment has:

(i) Debit balance of Rs.3,000 (ii) No balance (iii) Credit balance of Rs.4,000 (iv) Credit balance of Rs.9,000 (v) Credit balance of Rs.12,000

Question # 14: 2006 Regular – UOK The following balances have been taken from the pre-closing trial balance of Zeenat Trading Company on June 30, 2006: Accounts receivable 180,000 Allowance for bad debts 18,000 Gross sales 250,000 Sales return & allowances 10,000 REQUIRED Give adjusting entries under each of the following independent assumptions. (Show the necessary computation). Case – I: Bad debts expense is estimated on June 30, 2006, at 4% of the net credit sales. Case – II: The allowance for bad debts is estimated on June 30, 2006 at the rate of 10% of

the year-end balance of accounts receivable. Case – III: The allowance for bad debts on June 30, 2006, is estimated at Rs.20,000. Case – IV: The allowance for bad debts on June 30, 2006, is estimated at Rs.15,000. Question # 15: 2012 Private – UOK AB Company has debit balance in accounts receivable Rs.50,000 and credit balance of Rs.2,000 in allowance for bad debts account on July 1, 2009.During the year the company sold merchandise on account Rs.150,000. One of the customer’s accounts written off Rs.7,000. Recovered previously written off account Rs.10,000 to the extent of Rs.6,000. Company’s policy is to estimate its bad debts @ 10% of year end accounts receivable. REQUIRED

1. Prepare adjusting journal entries to record bad debts expense. 2. Prepare partial balance sheet as on June 30, 2010.

Question # 16: 1993 Private – UOK On December 31, 1992 the following balance appeared in the Trial Balance of Riaz Company: Accounts Receivable Rs.60,000 Allowance for Bad Debts Rs.500 Sales Rs.750,000 Sales Return and Allowances Rs.10,000 REQUIRED Prepare the journal entry to record the estimated bad debts expense at December 31, 1992 under each of the following conditions:

(1) Bad Debts expenses are estimated to be 1.5% net sales. (2) Bad Debts expenses are estimated to be 10% of A/C Receivable.


Chapter # 17



Question # 17: 1992 Regular – UOK The following balances have been taken from the pre-closing Trial Balance of Haroon & Co. on December 31, 1991. Accounts Receivable Rs.100,000 Allowance for Bad Debts (Dr) Rs.800 Sales Rs.124,000 REQUIRED

(a) Prepare the Journal entry to record the estimated bad debts at December 31, 1991, Under each of the following assumptions:

(i) Uncollectable account expense is estimated at 2-1/2% of sales. (ii) The allowance account is maintained at 4% of accounts Receivable.

(b) Prepare partial Balance Sheet on December 31, 1991 in each case. Question # 18: 2010 Regular – UOK Prior to the year-end adjustments accounts receivable account of Mansoor Corporation had balance of Rs.140,000 and the allowance for doubtful accounts showed a credit balance of Rs.2,000. Net credit sales for the year amounted to Rs.900,000. REQUIRED Compute the amounts of:

(a) Bad debts expense for the year if 10% of the year-end accounts receivable is estimated to be uncollectible.

(b) Allowance for doubtful accounts at year-end if 1% of net credit sales is estimated to be uncollectible.

Question # 19: 1995 Private – UOK On January 1, 1995 Sohni Enterprises had accounts receivable of Rs.240,000 and credit balance of Rs.12,000 in allowance for doubtful accounts. Determine the period ended June 30, 1995 their selected transactions are summarized as follows:

(1) Sales on account Rs.880,000. (2) Sales return and allowances Rs.30,000. (3) Cash collections from customers Rs.820,000. (4) Accounts receivable written off as worthless Rs.25,000. (5) Recovery of previously written off accounts receivable Rs.15,000.

REQUIRED (a) Prepare entries in General Journal to record the above transactions. (b) Prepare adjusting entry for uncollectible accounts expense, assuming that:

(i) Uncollectible accounts expense is estimated at 1% of net sales. (ii) Allowance for doubtful accounts is estimated at 5% of accounts receivable.

Question # 20: 1998 Regular – UOK Delta Company furnishes the following account balances at year ended June 30, 1998:- Balances:- A/c receivable Rs.250,000 (including past due accounts Rs.50,000).

Allowance for doubtful a/c (Dr.) Rs.2,500. Sales Rs.580,000 (including cash sales – Rs.180,000).

REQUIRED (i) Calculate bad debts expense using balance sheet approach @2% of not yet due accounts

receivable and 5% of the past due A/R. (ii) Calculate bad debts expense @ 1 ½ % of credit sales.


Chapter # 17


Sameer Hussain

Question # 21: 1988 Regular & Private – UOK On December 31, 1986 Sikander Company Accounts Receivable account showed a debit balance of Rs.36,000 and allowance for uncollectible account a credit balance of Rs.1,100. On this date the company estimated bad debts at 10% of Accounts Receivable. Summary of transactions for the year 1987 is as follows:

(1) Sales (all on credit) Rs.170,000 (2) Sales Return Rs.2,500 (3) Cash received from customers Rs.169,000 (4) Total account written off as uncollectible Rs.4,700 (5) Previously written off account recovered Rs.1,800

On December 31, 1987 the company estimated bad debts at 10% of the year end accounts receivable balance. REQUIRED

(a) Entries in the general Journal (i) To record the bad debts on December 31, 1986. (ii) For transactions 1 to 5 and (iii) To record bad debts on December 31, 1987.

(b) Set up T-Accounts for Accounts Receivable and Allowance for Uncollectable accounts and show all posting therein. Balance these accounts.

Question # 22: 2003 Regular & Private – UOK The following data are taken from the Afaqi Traders: Dec. 31, 2001 Dec. 31, 2002 Accounts receivable 70,000 156,700 Allowance for bad debts (CR) 300 Allowance for bad debts (CR) 5,000 During the year the following transactions were performed:

(a) Sales on account Rs.240,000. (b) Accounts receivable written off as uncollectible Rs.3,300. (c) Previously written off accounts receivable Rs.8,000. (d) Cash collected from customers Rs.150,000.

REQUIRED (i) Prepare journal entries to record the above transactions. (ii) Give an adjusting entry assuming Afaqi Traders estimate the uncollectible at 3% of

credit sales. (iii) Give an adjusting entry assuming Afaqi Traders estimate the bad debts at 10% of

accounts receivable at end. (iv) Prepare partial balance sheet showing accounts receivable and related allowance for

bad debts on Dec. 31, 2002, under both the approaches. Show the computation. Question # 23: 2008 Regular – UOK On June 30, 2008, before closing the accounts, the Aiman Company shows the following selected account balances as under: Accounts receivable – Control 600,000 Allowance for doubtful accounts 10,000 Credit sales 1,000,000 Sales discount 50,000 On this date, the following errors omissions were discovered:

(i) The sales return & allowances for Rs.50,000 were not recorded. (ii) Promissory note of Rs.10,000 received from customers to apply on account remained

unrecorded.


Chapter # 17



REQUIRED Give:

(a) General journal entries to correct the errors. (b) Prepare adjusting entries and also prepare partial balance sheet at June 30, 2008 under

each of the following assumptions separately: (i) Uncollectible account expense is estimated at 2% of net credit sales. (ii) Allowance for doubtful account is estimated at 10% of accounts receivable

(corrected) at the year-end. Question # 24: 2005 Regular – UOK The following account balances appear on the balance sheet of Hamna & Co. as on Dec. 31, 2003: Accounts receivable Rs. 250,000 Allowance for bad debts 8,500 During the year 2004 the following events took place:

(i) Accounts receivables of Rs.7,000 were written off as uncollectible. (ii) An accounts receivable in the amount Rs.2,000 which had been written off in the year

2003 was recovered. (iii) The aging of accounts receivable at the end of the year indicated that Rs.15,500 were

estimated to be uncollectible. REQUIRED Give the necessary entries to record the above transactions. Question # 25: 1989 Regular & Private – UOK On December 31, 1987 the Account Receivable account (Control) balance was Rs.69,000 and the Allowance for Bad Debts account showed a credit balance of Rs.3,000. During the year 1988 bad debts written off amounted to Rs.3,100. Total sales (including) Cash Sales of Rs.50,000. Amounted to Rs.1,30,000 and cash received and cash received consumers amounted to Rs.70,000 including Rs.1,000 for estimated bad debts at 5% of Accounts Receivable. REQUIRED

(1) Record the above transactions in the general journal including the year-end adjusting journal entry.

(2) Set up Account Receivable account and Allowance for Bad Debts account and complete with all postings.

(3) Show how the Account Receivable account will appear on the balance sheet on December 31, 1988.

Question # 26: 1990 Regular & Private – UOK The Balance Sheet of Jatoi Co. showed the following Balances on December 31, 1988. Accounts Receivable Rs.137,000 Allowance for Bad Debts Rs.13,700 The selected transactions of Jatoi Co. for the year 1989 were as under:

(1) Accounts Receivable written off during the year Rs.14,500. (2) Cash collected from customers on account Rs.195,000 (including Rs.5,000 from Noman

account was written of in 1988). The Account Receivable Balance on December 31, 1989 amounted to Rs.175,000. The Allowance of Bad Debts is estimated at the rate of 10% of the year and Accounts Receivable Balance. REQUIRED (a) Record the above transactions in the General Journal including adjusting & closing entries. (b) Prepare Partial Balance Sheet as on December 31, 1989. (c) State the condition under which the Allowance for Bad Debts Account may show a Debit

Balance.


Chapter # 17


Sameer Hussain

Question # 27: 1991 Regular & Private – UOK On January 01, 1990 the Accounts Receivable accounts balance was Rs.72,000 and the Allowance for Bad Debts accounts should a credit balance of Rs.3,600. During the year 1990 transactions relating a Receivable were as under:

(1) Sales on account Rs.325,000. (2) Cash collected from customers on account Rs.260,000. (3) Worthless Customer’s accounts were written off Rs.4,000. (4) A previously written off account of Rs.2,000 was subsequently recovered to the extent of

Rs.1,500. REQUIRED

(i) Record the above transactions in the General Journal. (ii) Record the opening balances in the Accounts Receivable account and the Allowance for

Bad Debts account and post the General Journal Entries therein. (iii) Estimate the Allowance for Bad Debts at 5% of the year-end balance of Accounts

Receivable, prepare its Adjusting Entry in the General Journal and post it to the Allowance for Bad Debts account.

(iv) Prepare Partial Balance Sheet as on December 31, 1990. Question # 28: 1993 Regular – UOK The following account balances appear on the Balance Sheet of Samad & Company as on December 31, 1992: Accounts Receivable – Control Rs.75,600. Allowance for Doubtful debts 1,800 Credit. During January 1993, the following events took place:

(1) Accounts Receivable of Rs.1,728 are written off as uncollectable. (2) An Account Receivable for Rs.234 was written off in 1992 is recovered. (3) Aging of Accounts Receivable at the end of month indicates that Rs.2,700 are estimated

to be uncollectable. REQUIRED

(1) Give the necessary journal entries to give effects to the above events, and (2) Prepare a partial balance sheet after giving effect to the above events.

Question # 29: 1996 Regular – UOK Atif & Company presented the following selected information for the year ended Dec. 31, 1995: Balance accounts receivable (31-12-94) Rs. 200,000 Balance allowance for bad debts (31-12-94) 5,000 A customer account is written off 6,000 A previously written off account of Rs.7,000 was subsequently recovered to the extent of 5,000 On December 31, 1995, the A/R (control) showed a debit balance of Rs.86,000. Analysis of accounts receivable subsidiary ledger revealed a credit balance of Rs.4,000 in customer account. On this date the company estimates bad debts at 10% of accounts receivable. REQUIRED

(a) Record entries including adjusting. (b) Prepare partial balance sheet as on December 31, 1995.

Question # 30: 2004 Private – UOK On January 1, 2003 the accounts receivable account in the General Ledger of Rahim & Co. showed a balance of Rs.204,000 and allowance for bad debts account showed a credit balance of Rs.13,200. The transactions for the year ended December 31, 2003 were as under:

(1) Sales on account Rs.180,320. (2) Cash received from customers Rs.182,400. (3) Customer’s account written off amounted to Rs.4,640.


Chapter # 17



(4) Aging of accounts receivable at the end of year indicated that Rs.14,640 were estimated to be uncollectible.

REQUIRED (a) Record the above transactions in the General Journal including the year-end adjusting

journal entry. (b) Set up accounts receivable account and allowance for bad debts account. Post the

journal entries in these accounts. Rule off and balance the accounts. (c) Prepare a balance sheet (partial) at December 31, 2003 showing relevant account

balances. Question # 31: 2004 Regular – UOK On December 31, 2002, the balance sheet of Karim & Co. showed the following balance: Accounts receivable Rs. 200,000 Less: Allowance for bad debts Rs. 4,000 Rs. 196,000 During the year 2003 total sales (including cash sales Rs.50,000) amounted to Rs.300,000. An accounts receivable Rs.3,500 was written off. A previously written off accounts receivable of Rs.1,000 was subsequently recovered to the extent of Rs.300. On December 31, 2003 the accounts receivable showed a debit balance of Rs.250,000. However, an analysis of accounts receivable subsidiary ledger revealed that a customer’s account showed a credit balance of Rs.10,000. On this date the company estimated 5% accounts receivable at the year-end as uncollectible. REQUIRED

(a) Give the General Journal entries relating to the above information including entries to adjust & close the bad debts expense.

(b) Set up allowance for bad debts account and post the above entries in the account. Rule off and balance the account.

(c) Show how the relevant account will be reported in balance sheet on December 31, 2003. Question # 32: 2006 Private – UOK The balance sheet prepares by Nazeer Corporation at Dec. 31, 2005 showed Rs.1,000,000 in accounts receivable and an allowance for doubtful accounts of Rs.50,000. During 2006, transactions relevant to accounts receivable are summarized as follows: (1) Sales on account Rs.1,500,000 (2) Sales returns and allowances Rs.12,500 (3) Cash payments by customers Rs.750,000 (4) Accounts receivable from Rehman & Company written off as worthless Rs.10,000 After careful aging and analysis of all customers’ accounts at Dec. 31, 2006, it was decided that allowance for doubtful accounts should be adjusted to a balance of Rs.30,000. REQUIRED

(i) Give entries General Journal from for each of the above transactions. (ii) Record the opening balance in accounts receivable account and allowance for bad debts

a/c and post the relevant entries therein. (iii) Prepare the adjusting entry on Dec. 31, 2006 for provision of doubtful accounts in

accordance with the corporation’s policy. Question # 33: 2007 Private – UOK Asim Company presented the following selected information for the year 2006.

(1) Accounts receivable (Jan. 1, 2006) 100,000 (2) Allowance for bad debts (Jan. 1, 2006) 12,000 (3) Total credit sales for the year 210,000 (4) Cash collected form customers 120,000 (5) Sales return and allowance 6,000


Chapter # 17


Sameer Hussain

(6) Sales discount allowed to customers 4,000 (7) Customers’ accounts written off during the year 18,000 (8) Accounts receivable previously written off collected during the year 15,000

REQUIRED (1) Prepare the accounts receivable (control) and allowance for bad debts account. (2) Record the bad debts expense and prepare a partial balance sheet as on December 31,

2006 under each of the following condition: (i) Bad debts expense is estimated to be 2% of net sales. (ii) Allowance for bad debts on December 31, 2006 should equal 6% of accounts

receivable as on December 31, 2006. Question # 34: 2008 Private – UOK Hadi Brothers furnished the following account balances & transactions concluded during 2008: Accounts receivable 1.1.2008 150,000 Allowance for bad debts 1.1.2008 6,400 Total cash collected from customers 395,000 Promissory notes received from customers to apply on account 34,000 Credit balance in customers’ accounts end of the year, advance payments 23,300 Customers’ account written off during the year 3,600 Gross credit sales for the year 600,000 Sales return and allowance 32,400 Sales discount allowed to customers 4,500 Previously written off A/c. receivable recovered 8,500 Note: Allowance for bad debts December 31, 2008 should be equal to 5% of the year-end

balance of accounts receivable account. REQUIRED

(i) Make posting of the above transactions directly into the accounts receivable and the allowance for bad debts accounts. Balance both the accounts on December 31, 2008.

(ii) Prepare a journal entry to record the year-end adjustment as required in the note. Prepare a partial balance sheet showing the accounts receivable and its allowance for bad debts accounts.

Question # 35: 2009 Private – UOK The following data is taken over from record of Faizan Co. Balances 31. 12. 07 31. 12. 08 Accounts receivable 150,000 260,000 Allowance for bad debts 3,000 Allowance for bad debts (before adjustment) (Cr.) 11,000 During 2008, the following transactions were performed:

(i) Total sales of Rs.300,000 including credit sales Rs.240,000. (ii) Previously written off accounts recovered Rs.8,000. (iii) Cash collected from customers Rs.100,000. (iv) Accounts receivable apply on note Rs.50,000. (v) Overpayment received from a customer Rs.20,000.

REQUIRED (a) Estimate the bad debts at 10% of receivable. (b) Give the dated adjusting entry for 2008. (c) Allowance for bad debts to justify the above information. (d) Prepare the partial balance sheet as on Dec. 31, 2008.


Chapter # 17



Question # 36: 2009 Regular – UOK Hadi started business on 1.1.07, the following are his selected transactions: 2007: Nov. 10 Sales of Rs.320,000 including cash sales Rs.40,000. Dec. 25 Collected Rs.50,000 for credit sales. Dec. 31 Hadi estimates the bad debts for the year Rs.9,000. 2008: May 11 Various accounts were found worthless and written off Rs.20,000. Jul. 15 Total sales were Rs.350,000 including 10% for cash sales. Oct. 25 Total cash collected on account Rs.150,000. Nov. 20 previously written off accounts recovered Rs.8,000. Dec. 31 Hadi estimates the bad debts for the period Rs.18,000. REQUIRED

(i) Prepare necessary dated entries in the General Journal for the period 2007 and 2008, using allowance method for estimating the bad debts.

(ii) Prepare the partial balance sheet as at end of 2007 only. Question # 37: 2010 Private – UOK Tariq Traders has the following selected information from its business records during 2009:

(a) Sold merchandise for Rs.220,000 on account and for cash Rs.50,000. (b) Collected cash from customers Rs.60,000. (c) Accepted a note from customer on account Rs.6,000. (d) A customer a/c. reveals a credit balance of Rs.1,000. (e) A worthless account written off Rs.7,000. (f) Earlier written off account recovered Rs.5,000.

Balances at 1 – 1 – 2009: Accounts receivable Rs.150,000 Allowance for bad debts (Cr.) 7,500 Notes receivable 3,000 REQUIRED

(i) Prepare journal entries for (a) to (f) above. (ii) Compute and prepare the adjusting entry assuming that bad debts are estimated at 5%

of a/c. receivable at end. (iii) Prepare the partial balance sheet as at Dec. 31, 2009.

Question # 38: 2011 Private – UOK The following account balances appears on the Balance Sheet of Zafar & Sons as on December 31, 2010: Accounts receivable – Control Rs.96,000 Allowance for doubtful debts Rs.1,920. During the January 2011, the following events took place:

(i) Accounts receivable of Rs.3,500 are written off as uncollectible. (ii) An accounts receivable of Rs.1,500 was written off in 2010 is recovered. (iii) Aging of accounts receivable at the end of month indicated that Rs.2,000 to be

uncollectible. REQUIRED

(1) Give the necessary journal entries to give effects to the above transactions. (2) Prepare a partial balance sheet after giving effect to the above events.


Chapter # 17


Sameer Hussain

Question # 39: 2011 Regular – UOK The following information is related to Saleem & Co. Accounts receivable Jan. 01, 2010 ........................................................ Rs.1,000,000 Allowance for bad debts (Cr.) Jan. 01, 2010 ..................................... Rs.5,000 Credit sales and collected during the year ........................................ Rs.800,000 Accounts receivable written off during the year ............................ Rs.20,000 Bad debts estimated 5% on accounts receivable, ending balance. REQUIRED Compute the amount of bad debts and give an adjusting entry at Dec. 31, 2010. Question # 40: 2000 Regular & Private – UOK Ahmed Trading Co. estimates uncollectible accounts at 10% of year-end balance of accounts receivable in December 31, 1998 the A/R (Control) had a Dr. balance of Rs.75,000/= and the allowance for doubtful accounts showed a credit balance of Rs.2,500/- but a customer’s account in a subsidiary ledger showed a credit balance of Rs.4,800/=. However, on January 5, 1999, the Co. sold merchandise at invoice price of Rs.200,000/= to the customer who had paid Rs.4,800/= in advance. Collected on receivable Rs.215,000/=, this is the cash received after discount deductions of Rs.4,400/=. During the year, total A/R written off Rs.15,000/= and the previously written off A/R recovered in the amount of Rs.6,500 at December 31, 1999. REQUIRED

(i) Give entries in general journal to record the bad debts expense and advance from customer at December 31, 1998.

(ii) Give entries in general journal to record all transactions completed during 1999. Including adjusting entry to record bad debts expense.

(iii) Report relevant account balances on balance sheet as of December 31, 1999. Question # 41: 2010 Regular – UOK On October 31, 2010 prior to adjustment accounts receivable account of Samsam Enterprises had a balance of Rs.180,000 and the allowance for doubtful accounts showed a credit balance of Rs.1,000. During November worthless accounts written off amounted to Rs.17,000 and the previously written off accounts recovered in the amount of Rs.7,000. On November 30 accounts receivable control account showed a balance of Rs.170,000 and a customer’s account in the subsidiary ledger revealed a credit balance of Rs.4,000. The Co. has a policy of estimating allowance for doubtful debts equal to 5% of the month-end balance of accounts receivable. REQUIRED Prepare:

(a) Adjusting and closing entries on October 31. (b) General journal entries for November transaction. (c) Adjusting entries and balance sheet on November 30.

Question # 42: 2005 Private – UOK The following information is available in respect of two Co. Company “A” Company “B” Accounts receivable balance at December 31, 2004 300,000 200,000 Allowance for bad debts January 1, 2004 10,000 20,000 Accounts receivable written off during the year 2,000 7,000 Rate of bad debts estimated 3% 5% REQUIRED

(i) Compute the amount of bad debts for the above companies. (ii) Give necessary adjusting entries at Dec. 31, 04 for both Co. (iii) Show relevant accounts on balance sheet of the companies.


Chapter # 17



Question # 43: 1999 Regular & Private – UOK The following information is available in respect of three different companies.

Company (1)

Company (2)

Company (3)

1. Balance of A/R on June 30, 1998 100,000 87,500 187,500 2. Balance of allow. for doubtful debts as on July 1, 1997 7,500 10,000 7,500 3. A/R written off during the year 5,000 12,500 5,000 4. Application rate of doubtful debts 2.5% 3.0% 2.0%

REQUIRED (1) Compute the amounts of doubtful debts for each of the above three companies separately. (2) Give the necessary adjusting journal entries for each of the above three companies

separately as on June 30, 1998. (3) Assume that the amount written off is recovered from A/R of Company (3), give the

necessary journal entries to record the recovery. Question # 44: 2011 Regular – UOK The following ledgers accounts are extracted from Naeem & Co.

Accounts Receivable 2010 2010 Jan 1 Balance 150,000 ii. Sales return 15,000 i. Sales 600,000 iii. Cash 400,000 iv. Sales discount 10,000 v. Note receivable 25,000 vi. Allowance for bad

debts 10,000

Allowance for Bad Debts

2010 2010 vi. Accounts receivable 10,000 Jan 1 Balance 15,000 REQUIRED Prepare entries in General Journal from the above postings. Question # 45: 1997 Private – UOK An analysis of the accounts receivable at end year produced the following groups:-

Not yet due Rs. 150,000 1 – 30 days past due 75,000 31 – 60 days past due 45,000 61 – 90 days past due 15,000 Over 90 days past due 10,000

Percentage considered uncollectable:- Group Percentage

1 2% 2 3% 3 15% 4 30% 5 50%

REQUIRED (i) Compute the estimated amount of uncollectable amount based on the above estimates. (ii) Give the adjusting entry to record the bad debts expense assuming that allowance for

doubtful account showed a credit balance of Rs.400.


Chapter # 17


Sameer Hussain

Question # 46: 1992 Private – UOK An analysis of the Accounts Receivable of Wardha Corporation at year end produced the following groups.

GROUP Rs. (1) Not yet Due 16,000 (2) 1-30 days past due 8,000 (3) 31-60 days past due 6,000 (4) Over 60 days past due 3,000

Percentage considered uncollectible 2% of group 1, 10% of group 2, 20% of group 3 and 30% of group 4. REQUIRED

(1) Compute the estimated amount of uncollectible accounts based on the above policy. (2) Give an adjusting entry to record bad debts expense assuming that Allowance for

Doubtful accounts showed a Dr. balance of Rs.2,000 prior to making adjustments. Question # 47: 2006 Regular – UOK The following have been taken from the pre-closing trial balance of Anjum & Co. on December 31, 2005: Accounts receivable 250,000 Allowance for bad debts (Debit balance) 2,500 At December 31, 2005, the accounts receivable included Rs.50,000 of the past due accounts. After careful study of all such past due accounts, the company estimated that probable loss contained therein was 20%. In addition, 1% of the remaining accounts receivable might prove uncollectible. REQUIRED Calculate bad debts expense for 2005 and prepare the necessary adjusting entry at the end of the year on December 31, 2005. Question # 48: 2012 Regular – UOK --- Accounts receivable January 1, 2011 Rs.2,500,000 --- Allowance for bad debts balance 123,000 1. Uncollectible customer’s accounts 78,000 2. Cash collection from customer account (including Rs.25,000 received from an

account previously written off as bad debts) 4,050,000 3. Promissory note received from customers to apply on account 650,000 4. Credit balance in customer’s account represents advance payment 145,000 5. Gross credit sales for the year 8,100,000 6. Sales discount 55,000

On December 31, 2011 the accounts receivable included Rs.850,000 of the past due accounts. After a careful study of all past due accounts, the management estimated that the probable loss contained therein was 20% and that in addition 2% of the current accounts receivable might prove uncollectible. REQUIRED

(i) Prepare journal entries in General Journal for all the transactions in 2011. (ii) Prepare the adjusting and closing entries at December 31, 2011.


Chapter # 17



Question # 49: 1995 Regular – UOK Aisf & Company sells merchandise to its customers on credit. The terms in all cases are thirty days. The company’s accounting year ends on December 31, each year. The company provides an allowance for doubtful debts equal to:

(1) 3% to all balances not due. (2) 5% to all which are 1 – 30 days past due. (3) 10% to all which are 31 – 60 days past due. (4) 15% to all which are 61 – 90 days past due. (5) 40% to all which are above 90 days past due.

The following customers’ accounts appear in the subsidiary ledger during 1994: Aslam

January 12 900 February 11 900 August 17 1,100

Altaf March 30 300 November 16 800

Khalid December 24 1,600

Saleem August 19 500 September 18 500 October 4 900

Karim September 28 400 November 16 800 December 4 2,000 REQUIRED

(1) Prepare a table showing analysis of the above accounts by Age Groups. (2) Compute the amount for doubtful debt applying the percentage given above. (3) Give the necessary adjusting entry assuming that the allowance for bad debts account

has a debit balance of Rs.250 before adjustment. Question # 50: 2007 Private – UOK Shandar Company has 120 accounts receivable in its subsidiary ledger. All accounts are due in 30 days. On December 31st, 2006, an aging schedule was prepared. The results are summarized below:

Not yet due 150,000 1 – 30 days past due 90,000 31 – 60 days past due 60,000 61 – 90 days past due 40,000 Over 90 days past due 10,000 Customers (118 names) subtotal 350,000

Two accounts receivable were accidentally omitted from this schedule. The following data is an available regarding these a/cs. Mateen owes Rs.50,000 from two invoices: invoice no. 101 dated September 14 in the amount of Rs.40,000 and invoice no. 250 dated November 9 in the amount of Rs.10,000. Nadeem owes Rs.20,000 from two invoices: invoice no. 230 dated November 19 in the amount of Rs.12,000 and invoice no. 410 dated December 5 in the amount of Rs.8,000.


Chapter # 17


Sameer Hussain

REQUIRED (1) Complete the aging schedule as of December 31st by adding the two columns subtotals

and aging of the accounts of Mateen and Nadeem. (2) Prepare a schedule to compute the estimated portion of each age group that will prove

uncollectible and the required balance in the allowance for doubtful accounts. The following percentages of each age group are estimated to be uncollectible: Not yet due 2%; 1 – 30 days 6%; 31 – 60 days 15%; 61 – 90 days 40%; over 90 days 50%.

(3) Prepare the journal entry to bring the allowance for doubtful accounts up to its required balance at December 31st, 2006. Prior to making this adjustment, the account has credit balance of Rs.31,060.

(4) Show how accounts receivable would appear in the company’s balance sheet at December 31st, 2006.

chapter # 17a4accounting.weebly.com/uploads/7/1/2/8/7128209/17-receivable... · valuation of...

Documents