Larrylwatts.com

Health Is Wealth

Accounting 2

Question one:

(1) Net sales

Sales                    415000

(Minus)  sales return 21000

Net sales            394000

(2) Inventory

Opening inventory                         80000

Purchases                                   280000

(Minus)  purchase return                             28000

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

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

Goods available for sale      332000

Minus  value of goods sold              260040

Remaining inventory 71960

Minus  recovered                             19800

Total 52160

Minus salvage value            7150

Value of loss                      45010

Therefore the total loss is equal to 45010

Question two:

Journal entries

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

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:

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

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

received through bank 138,000

bad debts written off 17,500

discount allowed account

dr

cr

discount allowed on sales 800

bank account

dr

cr

account receivable payment 138,000

bad debts received 6,300

expense account

dr

cr

discount allowed 800

bad debts expense account

dr

cr

bad debt provision 20,000

received bad debts 6,300

bad debt provision

dr

cr

customer provision 17,500

bad debt provision 20,000