QUESTION 12 (Show all workings)
As at 1 July 2014, Mehta Company had a debit balance in theirAccounts Receivable Control account of $35,820 and a credit balancein their Allowance for Doubtful Debts account of $7,190.
On 3 October 2014, the business wrote off the account of Rue PtyLtd for $3,040 after receiving written confirmation that thecustomer was declared bankrupt.
Required:
- Prepare the necessary journal entry to write-off the account ofRue Pty Ltd (ignore any GST effects).
At the end of the year, 30 June 2015, Mehta Company needs toestimate and account for future bad debts. Net credit sales for theyear were $821,000 and analysis of previous bad debts indicatesthat 1.5% of net credit sales will prove uncollectable.
Required:
- Prepare the necessary journal entry at 30 June 2015.
- Identify the methods for accounting for bad debts and brieflyexplain how each works.
