FNS40217 Certificate IV in Accounting and Bookkeeping - Module 1.1 Tutoring

Question. 9

At 30 June, H. Henry has been examining the amounts outstanding from his Accounts Receivable. 

One account, I. Doubt, owes $1,650 (including GST) but pays only $550 on 30 June, stating that he will be unable to pay the balance. Henry decides to write off the balance of Doubt’s debt as being unrecoverable.

Lester is both a customer and a supplier. Henry wants to adjust for a $660 balance both owing to, and owed by, L. Lester.

Required: 

1. Record, as General Journal entries, the receipt of cash from customer I. Doubt and the write-off of the balance as irrecoverable.
2. Record the General Journal entry for the contra adjustment.
3. Post the entries to the General Ledger accounts and to the Subsidiary Ledger accounts for I. Doubt and L. Lester.
4. What report can be used to manage debtors and assist in the identification of bad or doubtful debts, and what information does it contain?
5. You are establishing a credit policy to assist in the collection of monies owing by your customers. Please provide details of the steps you would include to recover overdue debts, based on varying levels of lateness.
   How would your policy change if you believed the level of overdue debts was too high?
6. Peters Plants sells artificial plants for indoor and outdoor use. The company is owned and managed by Peter Petersen.
   Credit Policy
   Terms and conditions – Standard credit terms are net 30 days. At the end of the month an aged receivables report and overdue accounts are reviewed. Monthly statements are issued at the end of the month.
   Collection Procedures
   The following steps are taken regarding the collection of monies owing:
   0-30 days current: Invoice/s sent to customer with month end statement
   31-60 days overdue account: Overdue sticker sent with next statement
   61-90 days overdue account: Phone call informing customer credit facility will be put on hold
   91 + days overdue account: If a customer’s debt is more than $150 a letter informing the customer their account will be turned over to a collection agency if payment is not received within 14 days.
   Customer Delinquency
   A debt that is 90 + days overdue and less than $150 will be written off as a bad debt.Required:
   (i) Using the information provided in Peters Plants Aged Receivable report as at 31 March 2018, complete an Overdue Accounts Review.
   (ii) Using the information from Peters Plants’ Credit Policy and Aged Receivables report as at 31 March 2018, what steps would you take regarding the collection of monies outstanding as at 31 March 2018?
   (iii) Who would you distribute these reports to?
   (iv) Where would these reports be filed?
   
7. In order to pay the invoices that have been received from your suppliers, what checks would you first undertake on these supplier invoices before making payment?