The financial records of Ali & Co include an allowance for doubtful debts of Rs.206,000 brought forward on 1 January. Trade receivables as at 31 Dec amount to Rs.2,440,000 and bad debts to be written off total Rs.55,000. An allowance for doubtful debts of 5% of receivables is to be carried forward. Required: Write up the bad debts expense account and allowance for doubtful debts 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.
The financial records of Ali & Co include an allowance for doubtful debts of Rs.206,000 brought forward on 1 January. Trade receivables as at 31 Dec amount to Rs.2,440,000 and
Required:
Write up the bad debts expense account and allowance for doubtful debts account.
It is pertinent to note that allowance for bad debts is a contra asset account. This account is created in order to make provision for bad debts that may occur in the future periods. The balance in the allowance for bad debts account should be equal to the estimated amount of bad debts at the end of the year.
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