The following selected transactions were taken from the records of Shipway Companyfor the first year of its operations ending December 31:Apr. 13. Wrote off account of Dean Sheppard, $8,450.May 15. Received $500 as partial payment on the $7,100 account of Dan Pyle. Wrote offthe remaining balance as uncollectible.July 27. Received $8,450 from Dean Sheppard, whose account had been written off onApril 13. Reinstated the account and recorded the cash receipt.Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry):Paul Chapman $2,225Duane DeRosa 3,550Teresa Galloway 4,770Ernie Klatt 1,275Marty Richey 1,69031. If necessary, record the year-end adjusting entry for uncollectible accounts.a. Journalize the transactions under the direct write-off method.b. Journalize the transactions under the allowance method. Shipway Company uses thepercent of credit sales method of estimating uncollectible accounts expense. Based onpast history and industry averages, ¾% of credit sales are expected to be uncollectible.Shipway Company recorded $3,778,000 of credit sales during the year.c. How much higher (lower) would Shipway Company’s net income have beenunder the direct write-off method than under the allowance method?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The following selected transactions were taken from the records of Shipway Company
for the first year of its operations ending December 31:
Apr. 13. Wrote off account of Dean Sheppard, $8,450.
May 15. Received $500 as partial payment on the $7,100 account of Dan Pyle. Wrote off
the remaining balance as uncollectible.
July 27. Received $8,450 from Dean Sheppard, whose account had been written off on
April 13. Reinstated the account and recorded the cash receipt.
Dec. 31. Wrote off the following accounts as uncollectible (record as one
Paul Chapman $2,225
Duane DeRosa 3,550
Teresa Galloway 4,770
Ernie Klatt 1,275
Marty Richey 1,690
31. If necessary, record the year-end
a. Journalize the transactions under the direct write-off method.
b. Journalize the transactions under the allowance method. Shipway Company uses the
percent of credit sales method of estimating uncollectible accounts expense. Based on
past history and industry averages, ¾% of credit sales are expected to be uncollectible.
Shipway Company recorded $3,778,000 of credit sales during the year.
c. How much higher (lower) would Shipway Company’s net income have been
under the direct write-off method than under the allowance method?
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