08 - Irrecoverable Debts and Provision For Doubtful Debts Complete Notes-1
08 - Irrecoverable Debts and Provision For Doubtful Debts Complete Notes-1
08 - Irrecoverable Debts and Provision For Doubtful Debts Complete Notes-1
Understand the meaning of irrecoverable debts and recovery of debts written off
Prepare ledger accounts and journal entries to record irrecoverable debts
Prepare ledger accounts and journal entries to record recovery of debts written off
Explain the reasons for maintaining a provision for doubtful debts
Prepare ledger accounts and journal entries to record the creation of, and
adjustments to, a provision for doubtful debts.
Definition:
Provision for debts that are deemed uncollectible based on reasonable estimation
Contra-asset
Credit account
Trade receivables at end of accounting period × Rate of provision for doubtful debts (%)
Double-entry:
Expenses:
Past Papers
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On 30 September 2011, after preparing the sales ledger control account Andrea was
advised that Keira is unable to pay the whole of her debt, $2 500.
Andrea accepted $500 in full settlement and the balance of the debt was written off.
REQUIRED
(c) Prepare the journal entry to record the transactions on 30 September 2011.
A narrative is not required. *3+
Andrea carried out a review of her remaining trade receivables before preparing her
financial statements. The following information relating to her trade receivables was
available:
Analysis of balances
$ Age of debt
George 11 500 One month
Ranjula 9 500 Two months
Harry 5 000 Four months
Trupti 1 500 Eight months
27 500
Andrea has the following policy for calculating the provision for doubtful debts:
Age of debts %
Up to 3 months 2
3-6 months 10
Over 6 months 20
REQUIRED
(c) Calculate the value of the provision for doubtful debts at 30 September 2011.
*4+
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(d) On 1 October 2010 the balance of the provision for doubtful debts account was
$1 500.
(e) Prepare the provision for doubtful debts account for the year ended 30
September 2011. Bring down the balance on 1 October 2011.
*3+
Name two accounting principles which Andrea is applying by maintaining a
provision for doubtful debts. *2+
Raja supplied the following information relating to her trade receivables before the
preparation of the income statement for the year ended 31 May 2013.
REQUIRED
(a) Prepare the provision for doubtful debts account for the year ended 31 May 2013.
Balance the account and bring the balance down on 1 June 2013. *6+
(b) Indicate with a tick (✓) the effect a reduction in the provision for doubtful debts
would have on the following:
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Raja is concerned that her profits have been falling and wishes to stop charging the
provision for doubtful debts in her income statement.
REQUIRED
(a) Advise Raja on whether she should continue to maintain a provision for doubtful
debts. Give reasons for your answer. *9+
QUESTION 3 NOVEMBER 2013 P22 Q2 (d & e)
Ann was informed that John Lee was unable to pay his outstanding balance of $2 300. It
was agreed that he would pay 40 cents for each dollar owed and he sent a cheque on 26
June 2013 in settlement. The balance was written off as a bad debt.
REQUIRED
(a) Prepare the general journal entry to write off the bad debt. A narrative is
required.
(b) Advise Ann why she should create a provision for doubtful debts. [6]
1. On 28 February 2016 Wade Designs, which owed Sofea $5 100, was declared
bankrupt. A cheque for $1 800 was received. The balance of the debt was
irrecoverable.
On 1 March 2015 the provision for doubtful debts account was $2 050.
REQUIRED
(e) Prepare the general journal to record the entries for Wade Designs on 28
February 2016.
A narrative is not required. *3+
(f) Calculate the provision for doubtful debts on 29 February 2016. *1+
(g) Prepare the provision for doubtful debts account for the year ended 29 February
2016. *3+
(h) Name one accounting concept applied by Sofea in providing for doubtful debts.
*1+