Accounts receivable is the amount payable by the customer to the company for the goods delivered and services provided. Accounts receivable is a current asset, and it is any amount owed to the company by the customers for goods purchased on credit. Bills receivable and accounts receivable are almost similar in nature, and they are used interchangeably but in fact refers to the amounts payable to a business entity under the transaction of bills of exchange in a business transaction.
Task 1:
Mr. Ziyad is accounting manager of Salalah Cement factory, having Mr. Ziyad wishes to explain about accounts receivable accounting to his accounting executives and expect you to understand the following relating to accounts receivable and prepare necessary journal entries and accounting treatment for the year ended 31st December 2021.
The company sells goods on RO 50000 for cash and RO 30000 on credit basis to various customers in the company. The company has received RO 5000 towards credit sales and the rest is receivable according to the terms of the business transaction.
Later, the company has not received any money out of the rest of the credit sales and decided to estimate the bad and doubtful debts at 2% of the total credit sales. The company had allowance for bad and doubtful debts (credit balance) RO 300.
(b) Prepare journal entries and show how it will appear in income statement and balance sheet.
Task 2:
Raquiya company has sold goods on credit RO 55,000 on 31st December 2020 and received RO 15,000 towards credit sales. The company had debit balance of RO 5500 and the balance in accounts receivable accounts RO 40,000.
Age of Accounts receivable Amount Percent
Less than 5 days 5,000 1%
5 to 10 days 2,000 5%
11 to 15 days 9,000 15%
16 to 20 days 5,000 25%
21 to 25 days 10,000 30%
26 to 30 days 9,000 50%
Total 40,000
a) Calculate the amount required in the allowance for doubtful debts as on 31st December 2021, using accounts receivable method.
b) Prepare journal entries for bad and doubtful debts
c) Show the accounting treatment of bad and doubtful debts in income statement and balance sheet.
d) Explain how the company can control the aged debts and the process to collect them early.
