Accounts Receivable

Question 1

Payment discounts… 2/10 net 30

Answer 1

discount amount/discount period, net period due

2% discount if the invoice is paid within 10 days, full amount due within 30 days

Question 2

$100 sale is made on credit with terms 2/10, net 30

Answer 2

To record the sale:

DR AR $100

CR Sales $100 T

o record the cash receipt:

DR Cash (100*0.98) $98

DR Sales revenue $2

CR AR $100

Question 3

AFDA

Answer 3

to recognize accounts that may not be received - only used for accounts for which there is an expectation that payment will not be made - IFRS: an entity shall assess at the end of the period whether there is any objective evidence that a financial asset is impaired - if any impairment exists, the entity shall reduce the carrying amount of the financial asset either directly or through the use of the allowance account

Question 4

2 ways to calculate AFDA

Answer 4

• percentage of sales method (IS approach) - aging of accounts receivable (BS approach)

Question 5

% of sales method: Credit sales $1,200,000 AR $300,000 AFDA $(5,000) Bad debt expense $nil Mgmt estimates that 2% of sales will be considered bad debt expense based on past debt occurrences.

Answer 5

Bad debt expense = credit sales * % = 1,200,000 * 0.02 = 24,000 DR Bad debt expense 24,000 CR AFDA 24,000 After the entry: AFDA = 5000+24000=29000. bad debt expense = 24000