The Lily Company uses the percent of receivables method of accounting for uncoll

Question

The Lily Company uses the percent of receivables method of accounting for uncollectible accounts receivable., and a perpetual inventory system. As of January 1, its net accounts receivable totaled $192,000 (Accounts Receivable $200,000 less an $8,000 Allowance for Doubtful Accounts). During the current year, the following transactions occurred. 1) Merchandise costing $1,050,000 was sold on account for $1,400,00. 2) The company collected $1,294,000 from customers on account. 3) $6,000 of accounts receivable were 4) $1,000 of accounts receivable previously written off as uncollectible were recovered. deemed uncollectible and written of. At year-end, Lily Company estimates that 4% of its accounts receivable are uncollectible. Prepare journal entries to record these transactions. Answer:

Explanation / Answer

SOLUTION:

In the books of Lily Company

Journal

Working notes:

Balance of Accounts receivable at the year end

= 192000+1400000-1294000-6000

= $292,000

Therefore, Uncollectible Accounts Expense at the year end = 292000*4% = $11,680

Serial no. Particulars Amount($) Debit Amount($) Credit 1. Accounts receivable A/C 1,400,000 Sales A/C 1,400,000 2. Cash A/C 1,294,000 Accounts receivable A/C 1,294,000 3. Allowances for Doubtful Debts A/C 6,000 Accounts receivable A/C 6,000 4. Cash A/C 1,000 Allowances for Doubtful Debts A/C 1,000 5. Uncollectible Accounts Expense A/C 11,680 Allowances for Doubtful Debts A/C 11,680

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