Question

Question no.1 Percent of sales method; write-off At year-end (December 31), Rashed Company estimates its bad debts as 0.5 % of its annual credit sales of AED975,000. Rashed records its bad debts expense for that estimate. On the following March 15, Rashed decides that the AED1,250 account of A. Abdulla is uncollectible and writes it off as a bad debt On April 15, Abdulla unexpectedly pays the amount previously written off. Required: Prepare the joumal entries of Rashed to record these transactions and events of December 31, March 15, and April 15. Question no. 2 Percent of accounts receivable method At each calendar year-end, Futaim Electric Co. uses the percent of accounts receivable method to estimate bad debts On December 31, 2018, it has outstanding accounts receivable of AED420,000, and it estimates that 2.5% will be uncollectible. Required: Prepare the adjusting entry to record bad debts expense for year 2018 under the assumption that the Allowance for Doubtful Accounts has (a) a AED2,000 credit balance before the adjustment and (b) a AEDI,700 debit balance before the adjustment

Answer 1

Answer to Question No. 1: % of sales method: write off

Date	Dr/Cr	Account title	Debit (AED)	Credit (AED)
31-Dec	Dr	Bad Debt Expense	4,875
	Cr	To Allowance for Doubtful accounts		4,875
		(Being 0.5% on credit sales of AED 975,000 accounted as bad debts
15-Mar	Dr	Bad Debt Expense	1,250
	Cr	To Allowance for Doubtful accounts		1,250
		(Being AED 1250 uncollectible from A. Abdulla accounted)
15-Mar	Dr	Allowance for Doubtful accounts	1,250
	Cr	To Accounts Receivable		1,250
		(Being AED 1250 uncollectible from A. Abdulla accounted)
15-Apr	Dr.	Accounts Receivable	1,250
		To Bad Debt Expense		1,250
		(Being Bad debt reversed)
15-Apr	Dr.	Cash @ Bank	1,250
		To Accounts Receivable		1,250
		(Being amount collected from A. Abdulla accounted)

Answer to Question No. 2: % of Accounts Receivable method: write off:

a) Allowance for doubtful accounts have Cr balance of AED 2000:

Details	Ref	Amount (AED)	Dr./Cr.
Opening Balance	A	2,000.00	Cr
Closing Balance (2.5% on AED 420,000)	B	10,500.00	Cr
Entry to be made for	A-B	8,500.00	Cr

Journal Entry as below:

Date	Dr/Cr	Account title	Debit (AED)	Credit (AED)
31-Dec	Dr	Bad Debt Expense	8,500
	Cr	To Allowance for Doubtful accounts		8,500
		(Being additional provision for doubtful debts accounted)

b) Allowance for doubtful accounts have dr balance of AED 1700:

Details	Ref	Amount (AED)	Dr./Cr.
Opening Balance	A	1,700.00	Dr
Closing Balance (2.5% on AED 420,000)	B	10,500.00	Cr
Entry to be made for	A+B	12,200.00	Cr

Journal Entry as below:

Date	Dr/Cr	Account title	Debit (AED)	Credit (AED)
31-Dec	Dr	Bad Debt Expense	12,200
	Cr	To Allowance for Doubtful accounts		12,200
		(Being additional provision for doubtful debts accounted)