Adamjee Coaching Centre1st Floor, Sami Chamber Opp. D.M.C. (Campus VIII), M.A Jinnah Road, Karachi. Tel: 021-3 2218260, 32637820Father Coaching CentreF-77 , Sultanabad, New Haji Camp, M. T. Khan Road Karachi. Tel: 021-35220006, 021-35621241

Accounting Hello: 0345-2419117

Valuation of Accounts Receivable

Accounts Receivable

Net Realizable Value (NRV)

Net Realizable Value (NRV) = Accounts Receivable – Allowance for Bad Debts

Bad Debts

According to Records According to Calculation

Direct Method/Net Method: Income Statement Approach:

Bad Debt Expense Dr. Rate of Bad Debts is appliedAccounts Receivable Cr. on sales.

Indirect/Allowance/Gross Method: Balance Sheet Approach:

Bad Debts Expense Dr. Rate of Bad Debts is appliedAllowance for Bad Debts Cr. on Accounts Receivable.

Bad Debts Expense By Income Statement Approach:Bad Debts Expense = Net Credit Sales x Rate of bad DebtsBad Debts Expense = 100000 x 2%Bad Debts Expense = Rs. 2000 (Entry Amount)

Allowance for Bad DebtsWritten off Rs. 7000 Balance B/F Rs.10000

Debit Balance C/F Rs.5000 Bad Debts Expense Rs. 2000 Credit

. . Rs. 12000 Rs. 12000

Balance B/F Rs. 5000

Adamjee Coaching Centre1st Floor, Sami Chamber Opp. D.M.C. (Campus VIII), M.A Jinnah Road, Karachi. Tel: 021-3 2218260, 32637820Father Coaching CentreF-77 , Sultanabad, New Haji Camp, M. T. Khan Road Karachi. Tel: 021-35220006, 021-35621241

Accounting Hello: 0345-2419117

Bad Debts Expense By Balance Sheet Approach:

Eastimated Allowance = Accounts Receivable (Ending) x Rate of bad DebtsEastimated Allowance = 70000 x 10%Bad Debts Expense = Rs. 7000 (Balance Sheet Amount)Less: Unadjusted Cr. Balance (If any) Rs. (1000)Add: Unadjusted Dr. Balance (If any) Rs. 1000Bad Debt Expense Entry Amount Rs. 7000

Allowance for Bad DebtsWritten off Rs. 7000 Balance B/F Rs.10000

Debit Balance C/F Rs.5000 Bad Debts Expense Rs. Credit

. . Rs. Rs .

Balance B/F Rs.

1. Sales (including Cash Sales Rs. 250000) Rs. 600000.2. Sales return Rs. 50000.3. Sales discount allowed Rs. 50000.4. Uncollectable account written off Rs. 30000.5. Cash collected from customer Rs 300000.6. Received cash from Customer which was previously written off.7. Received cash from Customer which was written off last year.8. Advance received from customer Rs.25000 recorded as normal cash collection.9. A customer’s amount in subsidiary ledger showed a credit balance of Rs. 5000.10. Promissory note of Rs.10000 from a customer to apply on account unrecorded).11. Bad Debts expense is 10% of N.C Sales.

Required:

Pass general journal entries including Adjusting & Closing entries.

Adamjee Coaching Centre1st Floor, Sami Chamber Opp. D.M.C. (Campus VIII), M.A Jinnah Road, Karachi. Tel: 021-3 2218260, 32637820Father Coaching CentreF-77 , Sultanabad, New Haji Camp, M. T. Khan Road Karachi. Tel: 021-35220006, 021-35621241

Accounting Hello: 0345-2419117

Date Particular P/R Debit Credit

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2

3

4

5

6(a)

6(b)

7(a)

7(b)

8

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11

Accounts ReceivableCash Sales RevenueTo close all assets accounts . Sales Return & Allowance Accounts ReceivableTo close all liabilities & contra accounts . Sales Discount Accounts ReceivableTo record Purchase consideration . Allowance for Bad Debts Accounts ReceivableTo record . Cash Accounts ReceivableTo record .Accounts Receivable Allowance for Bad DebtsTo record .Cash Accounts ReceivableTo record .Accounts Receivable Retained EarningTo record .Cash Accounts ReceivableTo record .Cash Accounts ReceivableTo record .Cash Accounts ReceivableTo record .Promissory Notes Payable Accounts PayableTo record .Bad Debts Expense Allowance for Bad DebtsTo record

Rs. 350000Rs. 250000

Rs. 50000

Rs. 50000

Rs. 30000

Rs. 300000

Rs. 30000

Rs. 30000

Rs. xxxx

Rs. xxxx

Rs. 25000

Rs. 5000

Rs. 10000

Rs. xxxx

Rs. 600000

Rs. 50000

Rs. 50000

Rs. 30000

Rs. 300000

Rs. 30000

Rs. 30000

Rs. xxxx

Rs. xxxx

Rs. 25000

Rs. 5000

Rs. 10000

Rs. xxxx