J Blane commenced business on 1 January 20X6 and prepares her financial statements to 31 December every year. For the year ended 31 December 20X6, bad debts written off amounted to ￡1,400. It was also found necessary to create a provision for doubtful debts of ￡2,600. In 20X7, debts amounting to ￡2,200 proved bad and were written off. J Sweeny, whose debt of ￡210 was written off as bad in 20X6, settled her account in full on 30 November 20X7. As at 31 December 20X7 total debts outstanding were ￡92,000. It was decided to bring the provision up to 4% of this figure on that date. In 20X8, ￡3,800 debts were written off during the year, and another recovery of ￡320 was made in respect of debts written off in 20X6. As at 31 December 20X8, total debts outstanding were ￡72,000. The provision for doubtful debts is to be increased to 5% of this figure. You are required to show for the years 20X6, 20X7 and 20X8, the (a) Bad Debts Account. (b) Provision for Doubtful Debts Account. (C) Extract from the Profit and Loss Account.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
J Blane commenced business on 1 January 20X6 and prepares her financial statements to 31 December every year. For the year ended 31 December 20X6,
In 20X7, debts amounting to ￡2,200 proved bad and were written off. J Sweeny, whose debt of ￡210 was written off as bad in 20X6, settled her account in full on 30 November 20X7. As at 31 December 20X7 total debts outstanding were ￡92,000. It was decided to bring the provision up to 4% of this figure on that date.
In 20X8, ￡3,800 debts were written off during the year, and another recovery of ￡320 was made in respect of debts written off in 20X6. As at 31 December 20X8, total debts outstanding were ￡72,000. The provision for doubtful debts is to be increased to 5% of this figure.
You are required to show for the years 20X6, 20X7 and 20X8, the
(a) Bad Debts Account.
(b) Provision for Doubtful Debts Account.
(C) Extract from the
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