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Tle Module

This document is a module from St. Thomas Academy about bookkeeping that discusses estimating doubtful accounts. It explains that doubtful accounts adhere to the conservatism principle by not overstating income. The module provides an example journal entry to record an estimate of doubtful accounts as an expense with an offset to allowance for doubtful accounts. It also gives assessments with examples of journal entries to record adjustments to allowance for bad debts under different company policies.

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87 views

Tle Module

This document is a module from St. Thomas Academy about bookkeeping that discusses estimating doubtful accounts. It explains that doubtful accounts adhere to the conservatism principle by not overstating income. The module provides an example journal entry to record an estimate of doubtful accounts as an expense with an offset to allowance for doubtful accounts. It also gives assessments with examples of journal entries to record adjustments to allowance for bad debts under different company policies.

Uploaded by

Thalia Manzanilla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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ST.

THOMAS ACADEMY
Poblacion 3, Sto. Tomas City, Batangas
School Year 2019-2020

MODULE IN TECHNOLOGY AND LIVELIHOOD EDUCATION 9


Bookkeeping

Module No. 01
Date February 15, 2020
Title Fourth Type of Adjustment – Estimating Doubtful Accounts
 Explain and understand the effects of estimating doubtful accounts
Objectives (allowance method).
 Solve transactions on estimating doubtful accounts.

D. DOUBTFUL ACCOUNTS - it adheres to the conservatism principle because


it shows how prudent (having careful good judgment) the business is in terms
of not overstating its income.

ALLOWANCE METHOD
 It requires recognition of doubtful accounts expense if accounts
receivable are doubtful of collection.

Adjusting Journal Entry:


Doubtful Accounts Expense (expense account - E)
Allowance for Doubtful Accounts (contra-asset account - A)

Provisions for doubtful accounts are based on estimates:


1. Percentage of Accounts Receivable
2. Percentage of service rendered on account (or credit sales)
3. Aging of Accounts Receivable

Example: 2% of accounts receivable is doubtful of being collected as of July


31, 2015.

Lesson Adjusting Journal Entry:


Doubtful Accounts Expense 150.00
Allowance for Doubtful Accounts (7,500 x .02) 150.00

Outstanding Accounts Receivable 7,500.00


Less: Allowance for Doubtful Accounts 150.00
Net Realizable Value, 07/31/15 7,350.00

Note: If there is a positive evidence of being uncollected (proven uncollectible),


it will be written off:

Allowance for Doubtful Accounts 150.00


Accounts Receivable 150.00

Formula in computing for ending balance of Accounts Receivable:

Accounts Receivable, beginning xxx


Add: Services rendered on account xxx
Less: Collections from customers (xxx)
Accounts Receivable, ending xxx
ST. THOMAS ACADEMY
Poblacion 3, Sto. Tomas City, Batangas
School Year 2019-2020

Prepare the necessary adjusting journal entry of the transaction that follows:

• The ledger balance for accounts receivable of Raffy Corporation showed a


balance of P94,000 at year-end December 31. The company estimated that
12% of outstanding customers’ account will be doubtful of collection.
Activity DATE PARTICULARS DEBIT CREDIT

On a journal sheet, prepare the necessary adjusting journal entry of the


following transactions:

1. Outstanding Accounts Receivable Barachiel Company as at year-end


December 31 amounted to P125,500 while adjusted Allowance for Bad
Debts amounted to P12,500. It is the policy of the company to increase
allowance by 3% of accounts receivable every year.

DATE PARTICULARS DEBIT CREDIT

2. Prepare the required adjusting entries to recognize the bad debts expense
of LUNA Company for the year ended December 31, 2016 under these
different cases:
 CASE A: The allowance for bad debts is estimated to be equal to
12% of accounts receivable.
 CASE B: It is the company’s policy to increase the allowance for bad
Assessment debts balance by 2% of the outstanding accounts receivable every
year.
 CASE C: It is the company’s policy to increase the allowance for bad
debts balance to 15% of the outstanding accounts receivable.

Some information regarding the Accounts Receivable account of LUNA


Company for the year 2016 are as follows:
Accounts Receivable, Jan. 1 P 57,000
Allowance for Bad Debts, unadjusted 14,000
Services rendered during the year on account 150,000
Collections from customers 55,620

Bonus: Case A is given as sample analysis

Accounts Receivable, Jan. 1 P 57,000


Services rendered during the year on account 150,000
Collections from customers ( 55,620)
Accounts Receivable, Dec. 31 P 151,380

Allowance Bad Debts, adjusted (151,380 x 12%) P 18,165.60


ST. THOMAS ACADEMY
Poblacion 3, Sto. Tomas City, Batangas
School Year 2019-2020

The company has already recorded unadjusted allowance for bad debts
amounting to P14,000, to come up with an adjusted amount of P18,165.60,
therefore the necessary adjustment for case A should be P4,165.60 (18,165.60
– 14,000).

DATE PARTICULARS DEBIT CREDIT

12/31/2016 Bad Debts Expense 4,165.60


Allowance for Bad Debts 4,165.60
To take up recognition of estimated
uncollectible as of 12/31/16.

Ending balance after adjustment:


Allowance for Bad Debts, unadjusted P 14,000.00
Add: Adjustment, 12/31/2016 4,165.60
Allowance Bad Debts, adjusted P 18,165.60

Case B:

DATE PARTICULARS DEBIT CREDIT

Ending balance after adjustment:


Allowance for Bad Debts, unadjusted P 14,000.00
Add: Adjustment, 12/31/2016 _________
Allowance Bad Debts, adjusted P _______

Case C:

DATE PARTICULARS DEBIT CREDIT

Ending balance after adjustment:


Allowance for Bad Debts, unadjusted P 14,000.00
Add: Adjustment, 12/31/2016 _________
Allowance Bad Debts, adjusted P _______

Due Date February 17, 2020 (before first period in the morning)

Prepared by:

MR. JEFFERSON G. GUINTO 02/09/2020


Subject Teacher

Noted by:

DCMpelegrina 02/10/2020

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