Max now feels he has a better grasp of why the allowance method he is using is a good option but is still not sure how it actually works. Max recalls something about a net sales method and ageing receivables from his studies but doesn’t know how to apply them.

You have been able to gather together the following information about Max Armim Torque’s debtors from Max’s records, The details below have already taken into account the write off in Part 2.

AGE OF ACCOUNTS AMOUNT UNCOLLECTABLE

(incl. GST) ESTIMATE %

_____________________________________________________________________

0 -1 month 21,725.00 2

1 -6 months 18,928.80 11

6 -12 months 9,880.20 46

over 12 months 1,980.00 92

52,514.00

_____________________________________________________________________

You have also been able to ascertain that Max’s revenues for the past year consist of

• Credit Sales and Installations $68,700
• Cash Sales and Installations $48,200
• Sales Returns $ 7,200

(returns are only available on credit sales)

• Industry data shows that 6% of credit transactions are likely to go bad.

Required

1. Max has asked you to update his accounts below to show him how he should have entered the transaction in part 2. Then show the impact on Max’s general ledger and Balance Sheet if the above information was applied using:

1. The ageing method

2. The net sales method

a.

Accounts Receivable
Date	Details	Post Ref	Debit	Credit	Balance
Allowance for Doubtful Debts
Date	Details	Post Ref	Debit	Credit	Balance
Doubtful Debts Expense
Date	Details	Post Ref	Debit	Credit	Balance

b.

Accounts Receivable
Date	Details	Post Ref	Debit	Credit	Balance
Allowance for Doubtful Debts
Date	Details	Post Ref	Debit	Credit	Balance
Doubtful Debts Expense
Date	Details	Post Ref	Debit	Credit	Balance