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15 October, 04:38

Fraud Investigators Inc. operates a fraud detection service.

On March 31, 10 customers were billed for detection services totaling $17,000.

On October 31, a customer balance of $1,100 from a prior year was determined to be uncollectible and was written off.

On December 15, a customer paid an old balance of $720, which had been written off in a prior year.

On December 31, $420 of bad debts were estimated and recorded for the year.

Required:

Prepare journal entries for each transaction above. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

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Answers (2)
  1. 15 October, 04:44
    0
    Fraud Investigators Inc.

    Date Particulars Debit Credit

    31 Mar Accounts Receivable $ 17,000

    Service Revenue $ 17000

    On March 31, 10 customers were billed for detection services totaling $17,000

    31 October Bad Debts $1100 Dr.

    Allowance for Doubtful Debts $ 1100 Cr

    When Allowance for Doubtful Debts is created.

    At the year end this adjusting entry would be passed. This is an adjusting entry and is not passed on 31st October. It is recorded on the year end.

    Allowance for Doubtful Debts $ 1100 Dr.

    Accounts Receivable $ 1100 Cr

    Dec 15 Allowance for Doubtful Debts $ 720 Dr

    Bad Debts $ 720 Cr

    Recovery Of Bad Debts

    Dec 31 Bad debts $ 420 Dr

    Allowance for Doubtful Debts $ 420 Cr

    On December 31, $420 of bad debts were estimated and recorded for the year
  2. 15 October, 04:51
    0
    Fraud Investigators Inc.

    Journal entries

    Mar 31.

    Debit Accounts Receivable Account with $17,000

    Credit Revenue with $17,000

    (Being Revenue on detection service in 10 clients sites)

    October 31

    Debit Bad debt Account with $1,100

    Credit Accounts Receivables Account with $1,100

    (Being Bad debts on Prior periods Payables balance not recoverable & written off)

    December 15

    Debit Cash $720

    Credit Bad debt recovered Account with $720

    (Being bad debt previously written off in prior years now recovered)

    December 31

    Debit Bad debts Account with $420

    Credit Bad debts Provision Account with $420

    (Being provision of Bad debt based on Accounts Receivable balance at year end)

    Explanation:

    Bad debt are Accounting provisions made with respect to the Accounts receivable Balance and the Ageing of these Balances.

    The older a debt is, the more likely customers will default. For this reason and considering the Prudence concepts firms are expected to appraise their Receivables position and make provisions for bad debts.

    Fraud Investigators Inc.

    Journal entries

    Mar 31.

    Debit Accounts Receivable Account with $17,000

    Credit Revenue with $17,000

    (Being Revenue on detection service in 10 clients sites)

    October 31

    Debit Bad debt Account with $1,100

    Credit Accounts Receivables Account with $1,100

    (Being Bad debts on Prior periods Payables balance not recoverable & written off)

    December 15

    Debit Cash $720

    Credit Bad debt recovered Account with $720

    (Being bad debt previously written off in prior years now recovered)

    December 31

    Debit Bad debts Account with $420

    Credit Bad debts Provision Account with $420

    (Being provision of Bad debt based on Accounts Receivable balance at year end)
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