Chapter 2- Bad Debt

8/19/2019 Chapter 2- Bad Debt

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Balance DayAdjustments:

*Bad Debts*Bad Debt Recovered*Allowance for Doubtful

Debts


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Learning Objectives

At the end of this topic students shouldbe able to:

!a"e adjustment on accountsreceivable for bad debts bad debtrecovered #if any$

%alculate and record allowance fordoubtful debts


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Accounting for Accounts

Receivable Business also has to ma"e adjustments on accounts

receivable for bad debt e&pense bad debt

recovered and allowance for doubtful debts

Business selling goods either cash or credit but mostof business sales are on %R'D()

)he credit term allows debtors some time to paybac" their debts that e&poses the business to theris"s that some of the customers may never pay


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Bad Debts

ncollectible amount due by debtors +ome debtors are not able to pay due to death

being declared a ban"rupt unable to trace etc,

Double entry Accounts

Debit

Credit

Bad Debt

Acc receivable


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Bad Debts(n the boo"s of a sole trader on -

December .//0 it was found that Ali andAhmad owed R!1// and R!2//respectively, A few reminders had beensent to both of them but they failed tosettle the debts, )he sole trader decided

to write o3 the whole amount as bad debton 1- December .//0,


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Bad Debts Recovered

Effects Double

entry

Accounts

ncreaseAssets

ncrease

!evenue

Debit

Credit

Cas" /Ban#

Bad Debt !ecovered a/c

4 5hen payment is being received bydebtors whose accounts has been writteno3 as bad debts

4 Revenue to the business and recorded in

(ncome +tatement


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Bad Debts Recovered Adjusting entries 6 to record recovery of bad

debts

Debit %ash 7 ban" a7c

%redit Bad Debts Recovered a7c

%losing entries:

Debit Bad Debt Recovered a7c

%redit (ncome +tatement


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8eneral LedgerBad Debt !ecovered Account

nco%e state%ent && Cas" &&

Cas"/Ban# Account

Balance b/d &&&Bad debt !ecovered &


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Bad Debts Recovered

A debtor Lim whose account had been writteno3 as bad paid R!0// by che9ue to settle theamount owing by him on - October .//0, )he

accounting period ends 1- December .//0,


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Allowance for doubtful debts

)he estimation amount of debtors who might notbe able to settle their debt in the future

)he estimation of allowance for doubtful debt ismade at the end of the accounting year, )heestimation is normally based on business paste&perience on their customers and also based onthe economic condition,


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Allowance for doubtful debts

(n the -st accounting period the estimationamount will be recorded in full as e&penses

(n the ne&t accounting period aboo""eeper needs to compare thecurrent estimation with previous

estimation amount and only record theincrease or decrease in Allowance for DD


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Doubtful Debts #DD$ < Allowance fordoubtful debts

(n the =rst year:

Allowance for DD c7d > ? &#Debtors7Account Receivable 6 @ew

Bad Debts and discount allowed atthe end of the year$

)he full amount will be treated ase&penses

Debit Bad Debt a7c

%redit A7c receivables


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Doubtful Debts #DD$ < Allowancefor doubtful debts

(n the following year:

Determine whether there is an increase or decreasein the allowance for doubtful debt

Amount of allowance for DD for the year before #b7d$

Diferences in the amount (increase/decrease)

in allowance for DD

Amount of allowance for DD for this year #c7d$


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Doubtful Debts #DD$ < Allowance for

doubtful debts(f increase > e&penses

Debit DD a7c

%redit Allowance for DD a7c

(f decrease > revenue

Debit Allowance for DD a7c%redit DD a7c


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Allowance for Doubtful Debts

)he companys policy for doubtful debt is at the

rate of .? on the remaining total debtors, +howthe calculation and the records in the provisionfor doubtful debt,

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Year ended 31 Dec

Total Debtor beforebad debt and

discount allowed

Bad debt and discountallowed during the year

2004 10,500 500

2005 12,400 400

2006 ,600 600


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1$

;inal resentation+OL for the year endedCCCC,,

Add: Revenue R!Bad Debts recovered &&&

Less: '&pensesBad Debts &&&


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;inal resentation

+O; As AtCCCC

%urrent Assets: R!

Debtors &&&

#$ Allowance for DD c7d #&&$

@et Debtor &&&

Chapter 2- Bad Debt

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Transcript of Chapter 2- Bad Debt