Question

1. Client has provided the following information: AR balance. 01/01 ADA balance, 01/01 This Year's credit sales This Year's account receivable collections This Year's actual bad debt $750,000 $ 30,000 $1.200.000 $1.000.000 $40,000 a. Prepare the required journal entries to record this year's credit sales, collections, and actual bad debt. Prepare the required adjusting journal entry assuming management desires a final AfDA balance of $40,000 as of 12/31. What is the difference between book income and taxable income for the year due to the difference in accounting treatment and tax treatment of account receivables?

Answer 1

a.

sno	account title	debit	credit
1	accounts receivable a/c	1,200,000
	..........To sales revenue a/c		1,200,000
	(to record credit sales)
2	cash a/c	1,000,000
	.........To Accounts receivable a/c		1,000,000
	(to record collections)
3	allowance for bad debts expense	40,000
	............To accounts receivable a/c		40,000
	(to record actual bad debts expense)

b.

sno	accounts	debit	credit
1	Bad debt expense	50,000
	.........To Allowance for doubtful accounts		50,000
	(amount = 40,000 desired balance - (30,000 opening balance -40,000 actual ) =>40,000- (-10,000)=>$50,000

c.

amount of bad debt expense as per book income	50,000
amount of bad debt expense as per tax income (actual expense)	40,000
difference amount	10,000

Income for taxable purposes will be $10,000 more than book income.