Accounting 4

Accounting 4

Question one:

(1) Net sales

Sales                             415000

(Minus) sales return 21000

(2) Inventory

Purchases                                                  280000

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Goods available for sale 332000

(3) The value of goods sold:

Gross profit = sales – cost of goods sold

Gross profit = 34% of sales

Therefore given that the net sale was 394000 from calculation one then we can find the value of the goods sold.

The gross profit from the sales is as follows:

Gross profit

394000               X             34%     =               133960

Given that

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Gross profit = sales – cost of goods sold

Then

Cost of goods sold = sales – Gross profit

394000 – 133960 = 260040

Cost of goods sold = 260040

(4) Merchandise after fire Sales value = 30000

If they were sold then the gross profit would have been 30000 X 34% = 10200

Cost of goods recovered = 30000 – 10200 = 19800 Therefore our total loss will be equal to

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Therefore the total loss is equal to 45010

Question two:

Journal entries

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Discussion:

Provision for bad debts:

Provision for bad debts is considered as a negative asset in the balance sheet, provision for bad debts can be defined as the proportion of the debtors or account receivables that cannot be collected. The following journal entires are made regarding provision

Provision for bad debts:

Dr – bad debt expense

Cr – bad debt provision

Payment by debtors:

Dr – bank or cash account

Cr – debtors account

Dr – bad debts provision

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Cr – bad debt expense

Writing off bad debts:

Dr – bad debt provision

Cr – debtors

Money received after write off

Dr – bank or cash account

Cr – bad debt expenses

Therefore given the above accounting principles we can now input our journal entries as follows:

Transaction 1

Given that there was an amount of 138000 received and this included a 40000 payment which had a 2% sales discount we will need to perform the following journal entries:

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Dr – bank account 138,000

Cr – account receivables 138,000

For the discount allowed

Dr – expense account 800

Cr – discount allowed account 800

Transaction 2:

6300 received from a written off debt

Dr – bank account 6300

Cr – bad debt written off expenses 6300

Transaction 3:

17500 written off debts from a consumer account

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Dr – bad debt provision account 17500

Cr – account receivable account 17500

Transaction 4:

Allowance for doubtful debts would be set at 20000 at the end of the year

Dr – bad debt expense 20000

Cr – bad debt provision 20000

The following are the journal entries according to accounts

account receivables account

dr

cr

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received  through bank 138,000

bad  debts written off 17,500

discount allowed account

dr

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cr

discount  allowed on sales 800

bank account

dr

cr

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account  receivable payment 138,000

bad  debts received 6,300

expense account

dr

cr

discount  allowed 800

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bad debts expense account

dr

cr

bad  debt provision 20,000

received  bad debts 6,300

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bad debt provision

dr

cr

customer  provision 17,500

bad  debt provision 20,000

References:

Larry Walther (2002) Principles of Accounting, McGraw Hill Press, New York

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