At December 31, 2021, the general ledger and subsidiary ledger for Wow?s, a small beauty supply company, showed the following:

Jan. 3 Hair Designs paid $8,000 on its account.

4 New Do paid $900 on its account that had previously been written off .

8 Great Looks purchased $3,000 of merchandise on account.

9 Your Spa paid cash for $2,000 of merchandise.

18 Great Looks returned $500 of merchandise

19 Luxury Spa paid $5,000 on its account.

20 Great Looks paid $10,000 on its account.

23 Hair Designs purchased $9,000 on account.

24 Ken?s Salon paid $3,000 on account.

25 New Do purchased $5,000 of merchandise on Visa.

26 Luxury Spa purchased $12,000 of merchandise on account.

31 Wow?s determined that the Ken?s Salon account receivable was not collectible.

Instructions

a. Record the above transactions. Ignore credit card fees and any inventory and cost of goods sold for the purposes of this question.

b. Set up T accounts for the Accounts Receivable general ledger (control) account, the Allowance for Doubtful Accounts general ledger account, and the Accounts Receivable subsidiary ledger accounts.

Post the journal entries to these accounts.

c. Wow?s estimated that 6% of accounts receivable is not collectible. Record the required adjustment to the Allowance for Doubtful Accounts.

d. Prepare a list of customers and the balances of their accounts from the subsidiary ledger. Prove that the total of the subsidiary ledger is equal to the control account balance.

What types of errors could result if the total of the account balances in the subsidiary ledger did not agree with the general ledger control account?

Transcribed Image Text:

Accounts Receivable Subsidiary Ledger General Ledger Accounts receivable Allowance for doubtful accounts Hair Designs Great Looks Ken's Salon Luxury Spa $ 8,000 11,000 9,000 $35,000 7,000 New Do $35,000 Total