chapter 2 bad debts and allowance for doubtful...
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Chapter 2 Bad Debts and Allowance for Doubtful Accounts
Notestoteachers
1 StartwithChapter3ofFrank Wood’s Introduction to Accountingandbrieflyexplaintostudentshowtorecordcreditsalesinthebooks.
2 Askstudentswhatshouldbedoneinthebooksifitisascertainedthatatradedebtorwillnotbeabletosettlehisoutstandingbalance,beforeexplainingtothemthemeaningofbaddebtsandtherequiredaccountingentries.
3 Similarly,askstudentswhatshouldbedoneinthebooksifitisfoundthatabaddebtwrittenoffpreviouslyhasbeenpaidback,beforetellingthemthemeaningofbaddebtsrecoveredandtherequiredaccountingentries.
4 Baddebtsmaybewrittenoffandrecoveredwithinthesameaccountingperiodorindifferentaccountingperiods.Studentsmustnotethedifferencesintheiraccountingtreatments.
5 Beforeteachingstudentstheadjustingentriesforcreatinganallowancefordoubtfulaccounts,itisnecessarytointroducetheprudence(orconservatism)conceptandexplainhowitaffectstheprofitandlossforanaccountingperiod.
6 Theterm‘allowancefordoubtfulaccounts’isusedintheNSSCurriculumGuide.Studentsshouldknowthealternativenames,suchasprovisionforbaddebts,provisionfordoubtfuldebtsorallowancefordoubtfuldebts.
7 Itismoreappropriatetousetheterm‘allowance’insteadof‘provision’.TeacherscanrefertoChapter13ofFrank Wood’s Financial Accounting 2forthetruemeaningofprovisions.However,itmaynotbenecessaryforstudentstoknowaboutthedifferencesbetween‘provision’and‘allowance’untilthatchapter.
8 Therearetwomethodsforestimatingtheamountofdoubtfulaccounts.Inpractice,theuseofspecificallowancesismorecommon.
9 Moststudentshavedifficultyunderstandingthedifferencebetweenrecordingtheallowancefordoubtfulaccountsforthefirsttimeandinsubsequentperiods.Teacherscanexplainitinthefollowingmanner:
• Year1:Supposeattheendoftheyear,accountsreceivabletotal$100,000.Itisdecidedthata5%allowancefordoubtfulaccountsistobecreatedforthefirsttime.Asaresult,thefollowingentrieswouldbemade:
Dr Profitandloss$5,000 Cr Allowancefordoubtfulaccounts$5,000
• Year2:Year-endaccountsreceivabletotal$120,000.A5%allowancefordoubtfulaccountsistobemaintained.Asaresult,thefollowingentrieswouldbemade:
Dr Profitandloss$6,000
Cr Allowancefordoubtfulaccounts$6,000
Theallowancemadeinthepreviousyearshouldbereversed:
Dr Allowancefordoubtfulaccounts$5,000 Cr Profitandloss$5,000
Chapter 2
Notestoteachers
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ThisisbecauseiftheallowancemadeinYear1turnsouttobebaddebtsinYear2,thefollowingentrieswouldbemade:
DrBaddebts(profitandloss)$5,000* Cr Accountsreceivable$5,000*
*Theactualtotalforbaddebtscanbeless.
IftheallowancefordoubtfulaccountsmadeinYear1isnotreversed,thelossof$5,000wouldhavebeenrecordedtwiceinthebooks(inYear1andYear2respectively).
EvenifthedebtscanallbecollectedinYear2,theallowancefordoubtfulaccountsmadeinYear1shouldstillbereversedbecausetheestimatedlosshasnotbeenrealised.
Forsimplicity,therequiredentriesfortheallowancefordoubtfulaccountsinYear2wouldbe:
Dr Profitandloss$1,000 Cr Allowancefordoubtfulaccounts$1,000
Onlytheincrease($6,000−$5,000)intheallowanceshouldberecorded.
Thesamelogicappliestotherecordingofadecreaseintheallowancefordoubtfulaccounts.
10 Furthermore,moststudentshavedifficultydecidingwhetherbaddebtsshouldbedeductedfromaccountsreceivableincalculatingtheallowancefordoubtfulaccounts.Iftherearebaddebtsshowninthetrialbalance,thismeansthattheyhavealreadybeendeductedfromaccountsreceivable.Ifbaddebtsdonotappearinthetrialbalancebutarementionedasadditionalinformationinthequestion,thismeanstheyhavenotbeendeductedfromaccountsreceivable.Anadjustmentshouldthenbemadetowriteoffthebaddebtsfromaccountsreceivable.
11 Studentsshouldbeabletodifferentiatebetween:
• thenatureofthebaddebtsaccountandtheallowancefordoubtfulaccountsaccount(expenseaccountvs.contra-assetaccount)
• grossamountandnetamount(netrealisablevalue)ofaccountsreceivable
12 ThetopicofallowancefordiscountsallowedisnotexplicitlyspelledoutintheNSSCurriculumGuide.However,teachersareadvisedtoteachitasadditionalmaterial.
Q1 Baddebtsrefertoaccountsreceivablethathavebeenprovedtobeuncollectible.Thenetprofitfortheperiodwillbereducedbythebaddebtswrittenoff.
Q2 Baddebtsaretreatedasanexpenseofabusiness.Thebaddebtsaccountisanominalaccount.
Q3 Baddebtsrefertoaccountsreceivablethathavebeenprovedtobeuncollectible.Thiswouldhappenwhenadebtorhasgonebankruptandisunabletopaythedebt.Onceabaddebtarises,itshouldbeimmediatelywrittenofffromtheaffecteddebtor’saccount.
Doubtfuldebtsrefertoaccountsreceivablethatarelikelytobecomeuncollectible.Undertheprudenceconcept,anallowanceshouldbemadefordoubtfulaccountsattheendofanaccountingperiod.Theamountofdoubtfulaccountsisjustanestimate.
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Q4 Theamountofdoubtfulaccountscanbeestimatedoneitherofthefollowingbases:
Specific allowance
Eachdebtor’saccountislookedatindividuallytoseewhetherthedebtislikelytobecomeuncollectible.Ifadebtislikelytobecomeuncollectible,anallowancewouldthenbemade,uptothefullamountofthedebt.
General allowance
Afixedpercentageisappliedtothetotalofaccountsreceivable.Thepercentagecanbeaffectedbymanyfactors,suchastheproportionofaccountsreceivablewrittenoffasbadinpastyears,thecreditworthinessofdebtorsandthegeneralbusinessenvironment.Usually,thelongeradebtisoutstanding,themorelikelyitwillbecomeuncollectible.Therefore,ahigherpercentagewouldbeappliedtothoseaccountsthathavebeenoutstandingforalongerperiod(i.e.,olderaccounts).
Q5 Thenetrealisablevalueofaccountsreceivablereferstotheamountofcashthatisexpectedtobecollectedfromthem.Itisusuallycalculatedastheoriginalamountofaccountsreceivable,lessthebaddebtswrittenoffandtheallowancefordoubtfulaccounts(andtheallowancefordiscountsallowed,ifany).
Q6 Onceabaddebtarises,itshouldbeimmediatelywrittenofffromtheaffecteddebtor’saccount.Attheendofanaccountingperiod,thetotalofbaddebtswillbetransferredtotheprofitandlossaccountasanexpense.
Inaddition,anallowancewillbemadefordoubtfulaccountsattheendofanaccountingperiodasfollows:
1 Whentheallowancefordoubtfulaccountsismadeforthefirsttime:
Dr Profitandlossaccount Cr ‘Allowancefordoubtfulaccounts’account
Theentireallowanceamountwillberecordedintheprofitandlossaccountasanexpense.
2 Whentheallowancefordoubtfulaccountsismadeinsubsequentperiods:
(a) Anincreaseintheallowanceshouldberecordedasanexpense:
Dr Profitandlossaccount Cr ‘Allowancefordoubtfulaccounts’account
Theincreaseinallowancewillberecordedintheprofitandlossaccountasanexpense.
(b) Adecreaseintheallowanceshouldberecordedasotherrevenue:
Dr ‘Allowancefordoubtfulaccounts’account Cr Profitandlossaccount
Thedecreaseinallowancewillberecordedintheprofitandlossaccountasotherrevenue.
A1 Undercashaccounting,salesarerecordedwhenmoneyisreceived.Theuncollectedamountswillnotberecordedandseparatelyshown.Therefore,thereisnoneedtowriteoffbaddebts.
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A2 Accounts Receivable LedgerT Yeung
2009 $ 2009 $Dec 10 Baddebts 1,000 Dec 10 Bank 1,000
General LedgerBad Debts
2009 $ 2009 $May 17 KLau 4,800 Dec 10 TYeung(baddebtsrecovered) 1,000Aug 20 TYeung 2,400 " 31 Profitandloss 6,200 7,200 7,200
A4 Intheincomestatement:
• ‘Netprofit’fortheyearwouldbetotalrevenuesreceivedminustotalexpensespaidduringtheyear.
• ‘Sales’wouldbetheamountactuallyreceivedfromsalesduringtheyear.
• ‘Purchases’wouldbetheamountactuallypaidforpurchasesduringtheyear.‘Discountsreceived’wouldnotbeseparatelyshown.
• Thematchingconcept(whichwillbeexplainedinChapter17ofFrank Wood’s Financial Accounting 2)wouldnolongerapply.Therefore,noadjustmentsforopening/closinginventorywouldberequired.
• ‘Baddebtsrecovered’wouldnotberecordedandseparatelyshown.
• Noadjustmentsforaccruedexpensesandprepaidrentwouldberequired.
• Nobaddebtswouldbewrittenoffandnoallowancewouldbemadefordoubtfulaccounts.
Inthebalancesheet:
• Theitems‘inventory’,‘accountsreceivable’and‘prepaidexpenses’wouldnotappearincurrentassets.
• Theitems‘accountspayable’and‘accruedexpenses’wouldnotappearincurrentliabilities.
A5 Baddebtsanddoubtfuldebtsrefertotheamountsprovedorestimatedtobeuncollectible,respectively.Cashdiscountsareunlikelytobeallowedonuncollectibleaccounts.Onlytheaccountsreceivable,afterdeductingthebaddebtswrittenoffandtheallowancefordoubtfulaccounts,couldenjoycashdiscountsbypayingwithinthecashdiscountperiod.
ASSESSMENT
Short QuestionsShort Questions
1 D Fung
2009 $ 2009 $Jan 1 Balanceb/f 2,000 Feb 1 Cash 1,500 " 1 Baddebts 500 2,000 2,000
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C Chang
2009 $ 2009 $Jan 1 Balanceb/f 1,200 Mar 10 Cash($1,200×30%) 360 " 10 Baddebts 840 1,200 1,200
Bad Debts
2009 $ 2009 $Feb 1 DFung 500 Dec 31 Profitandloss 1,340Mar 10 CChang 840 1,340 1,340
2X Income Statements for the years ended 31 December (extract)
$2008 Baddebts 2,0002009 Baddebts 3,000
Balance Sheets as at 31 December (extract)
$2008 Accountsreceivable 38,0002009 Accountsreceivable 57,000
Application Problems
3 Bad Debts
2005 $ 2005 $Mar 31 Accountsreceivable 10,000 Mar 31 Profitandloss 10,000
2006 2006Mar 31 Accountsreceivable 5,000 Mar 31 Profitandloss 5,000
2008 2008Mar 31 Accountsreceivable 6,000 Mar 31 Profitandloss 6,000
Allowance for Doubtful Accounts
2005 $ 2005 $Mar 31 Balancec/f 3,000 Mar 31 Profitandloss 3,000 [($70,000−$10,000)×5%]2006 2005Mar 31 Balancec/f 3,750 Apr 1 Balanceb/f 3,000 2006 Mar 31 Profitandloss{[($80,000−$5,000) ×5%]−$3,000} 750 3,750 3,750
2007 2006Mar 31 Profitandloss[$3,750–($60,000×5%)] 750 Apr 1 Balanceb/f 3,750" 31 Balancec/f 3,000 3,750 3,750
2008 2007Mar 31 Balancec/f 3,200 Apr 1 Balanceb/f 3,000 2008 Mar 31 Profitandloss{[($70,000–$6,000) ×5%]−$3,000} 200 3,200 3,200
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Incomes Statements for the years ended 31 March (extract)
$ $2005 Baddebts 10,000 Allowancefordoubtfulaccounts 3,000
2006 Baddebts 5,000 Allowancefordoubtfulaccounts (increase) 750
2007 Allowancefordoubtfulaccounts (reduction) 750
2008 Baddebts 6,000 Allowancefordoubtfulaccounts (increase) 200
Balance Sheets as at 31 March (extract)
$ $2005 Accountsreceivable 60,000 Less Allowancefordoubtfulaccounts (3,000) 57,000
2006 Accountsreceivable 75,000 Less Allowancefordoubtfulaccounts (3,750) 71,250
2007 Accountsreceivable 60,000 Less Allowancefordoubtfulaccounts (3,000) 57,000
2008 Accountsreceivable 64,000 Less Allowancefordoubtfulaccounts (3,200) 60,800
4X (a)(i) Bad Debts
2006 $ 2006 $Dec 31 Accountsreceivable 2,980 Dec 31 Profitandloss 2,980
2007 2007Dec 31 Accountsreceivable 3,860 Dec 31 Profitandloss 3,860
2008 2008Dec 31 Accountsreceivable 3,440 Dec 31 Profitandloss 3,440
2009 2009Dec 31 Accountsreceivable 4,770 Dec 31 Profitandloss 4,770
(ii) Allowance for Doubtful Accounts
2006 $ 2006 $Dec 31 Balancec/f 3,000 Dec 31 Profitandloss 3,000
2007 2007Dec 31 Balancec/f 3,300 Jan 1 Balanceb/f 3,000 Dec 31 Profitandloss 300 3,300 3,300
2008 2008Dec 31 Profitandloss 150 Jan 1 Balanceb/f 3,300" 31 Balanceb/f 3,150 3,300 3,300
2009 2009Dec 31 Balancec/f 3,500 Jan 1 Balanceb/f 3,150 Dec 31 Profitandloss 350 3,500 3,500
2010 Jan 1 Balanceb/f 3,500
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(iii) Income Statements for the years ended 31 December (extract)
$ $2006 Baddebts 2,980 Allowancefordoubtfulaccounts 3,000
2007 Baddebts 3,860 Allowancefordoubtfulaccounts 300
2008 Baddebts 3,440 2008 Allowancefordoubtfulaccounts 150
2009 Baddebts 4,770 Allowancefordoubtfulaccounts 350
(iv) Balance Sheets as at 31 December (extract)
$ $2006 Accountsreceivable 120,000 Less Allowancefordoubtfulaccounts (3,000) 117,000
2007 Accountsreceivable 150,000 Less Allowancefordoubtfulaccounts (3,300) 146,700
2008 Accountsreceivable 140,000 Less Allowancefordoubtfulaccounts (3,150) 136,850
2009 Accountsreceivable 180,000 Less Allowancefordoubtfulaccounts (3,500) 176,500
(b) Baddebtsrefertoaccountsreceivablethathavebeenprovedtobeuncollectible.Thiswouldhappenwhenadebtorhasgonebankruptandisunabletopaythedebt.
Undertheprudenceconcept,anallowanceshouldbemadeattheendofanaccountingperiodforaccountsreceivablethatarelikelytobecomeuncollectible(i.e.,doubtfulaccounts).Theamountofdoubtfulaccountsisjustanestimate.
5X (a)(i) Allowance for Doubtful Accounts
2007 $ 2007 $Sept30 Balancec/f 1,060 Sept30 Profitandloss 1,060
2008 [($12,000–$600–$800)×10%]
Sept30 Profitandloss 60 Oct 1 Balanceb/f 1,060" 30 Balancec/f 1,000 1,060 1,060
(ii) T Young Income Statements for the years ended 30 September (extract)
$ $2007 Baddebts($600+$800) 1,400 Allowancefordoubtfulaccounts 1,060 2008 Allowancefordoubtfulaccounts 60
(iii) T Young Balance Sheets as at 30 September (extract)
$ $2007 Accountsreceivable 10,600 Less Allowancefordoubtfulaccounts (1,060) 9,540 2008 Accountsreceivable 10,000 Less Allowancefordoubtfulaccounts (1,000) 9,000
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(b) Afixedpercentageisappliedtothetotalofaccountsreceivable.Thepercentagecanbeaffectedbymanyfactors,suchastheproportionofaccountsreceivablewrittenoffasbadinpastyears,thecreditworthinessofdebtorsandthegeneralbusinessenvironment.Themanagementshouldreviewthepercentageregularlyandmakechangesifnecessarytoensurethatanadequateallowanceismadetocoverpossiblebaddebts.
6 (a) Bad Debts
2008 $ 2008 $Mar 31 Accountsreceivable 2,000 Mar 31 Profitandloss 2,000
2009 2009Mar 31 Accountsreceivable 1,500 Mar 31 Profitandloss 1,500
(b) Bad Debts Recovered
2009 $ 2009 $Mar 31 Profitandloss 500 Jan 31 MrRobinson 500
(c) Allowance for Doubtful Accounts
2008 $ 2008 $Mar 31 Balancec/f 320 Mar 31 Profitandloss[($18,000−$2,000)×2%] 320
2009 2008Mar 31 Balancec/f 480 Apr 1 Balanceb/f 320
2009 Mar 31 Profitandloss[($24,000×2%)−$320] 160 480 480
(d) Income Statements for the years ended 31 March (extract)
$ $2008 Baddebts 2,000 Allowancefordoubtfulaccounts 320
2009 Baddebts 1,500 2009 Baddebtsrecovered 500 Allowancefordoubtfulaccounts (increase) 160
7X (a) Bad Debts
2007 $ 2007 $Dec 31 Accountsreceivable 2,400 Dec 31 Profitandloss 2,400
2008 2008Dec 31 Accountsreceivable 3,200 Dec 31 Profitandloss 3,200
2009 2009Dec 31 Accountsreceivable 4,700 Dec 31 Profitandloss 4,700
(b) Bad Debts Recovered
2008 $ 2008 $Dec 31 Profitandloss 700 Nov 30 MrsPYip 700
2009 2009Dec 31 Profitandloss 300 Dec 31 Accountsreceivable 300
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(c) Allowance for Doubtful Accounts
2007 $ 2007 $Dec 31 Balancec/f 4,000 Dec 31 Profitandloss 4,000
2008 2008Dec 31 Balancec/f($112,000×5%) 5,600 Jan 1 Balanceb/f 4,000 Dec 31 Profitandloss 1,600 5,600 5,600
2009 2009Dec 31 Profitandloss 1,400 Jan 1 Balanceb/f 5,600" 31 Balancec/f($84,000×5%) 4,200 5,600 5,600
(d) Income Statements for the years ended 31 December (extract)
$ $2007 Baddebts 2,400 Allowancefordoubtfulaccounts 4,000
2008 Baddebts 3,200 2008 Baddebtsrecovered 700 Allowancefordoubtfulaccounts (increase) 1,600
2009 Baddebts 4,700 2009 Allowancefordoubtfulaccounts (reduction) 1,400 Baddebtsrecovered 300
8 Bad Debts
2009 $ 2009 $Dec 31 Accountsreceivable 2,960 Dec 31 Profitandloss 2,960
Allowance for Doubtful Accounts
2009 $ 2009 $Dec 31 Balancec/f 1,132 Jan 1 Balanceb/f 672 Dec 31 Profitandloss {[($25,600−$2,960)×5%]−$672} 460 1,132 1,132
Allowance for Discounts Allowed
2009 $ 2009 $Dec 31 Balancec/f 538 Jan 1 Balanceb/f 430 Dec 31 Profitandloss{[($25,600−$2,960 −$1,132)×2%]−$430} 108 538 538
Income Statement for the year ended 31 December 2009 (extract)
$Baddebts 2,960Allowancefordoubtfulaccounts(increase) 460Allowancefordiscountsallowed(increase) 108
Balance Sheet as at 31 December 2009 (extract)
$ $Accountsreceivable 22,640Less Allowancefordoubtful accounts 1,132 Allowancefordiscounts allowed 538 (1,670) 20,970
1212
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9X (a) Income Statement for the year ended 31 March 2006 (extract)
$Baddebts 14,000Allowancefordoubtfulaccounts [($334,000–$14,000)×3%] 9,600Allowancefordiscountsallowed [($334,000–$14,000–$9,600)×2%] 6,208
Income Statement for the year ended 31 March 2007 (extract)
$Allowancefordoubtfulaccounts(increase) [($415,000×3%)–$9,600] 2,850Allowancefordiscountsallowed(increase) {[($415,000–$9,600–$2,850)×2%]–$6,208} 1,843
Income Statement for the year ended 31 March 2008 (extract)
$ Allowancefordoubtfulaccounts(reduction) [($360,000×2%)–$9,600–$2,850] 5,250 Allowancefordiscountsallowed(reduction) {[($360,000–$7,200)×2%]–$6,208–$1,843} 995 Baddebtsrecovered 7,000
(b) Balance Sheet as at 31 March 2006 (extract)
$ $Current assetsAccountsreceivable 320,000Less Allowancefordoubtful accounts 9,600 Allowancefordiscounts allowed 6,208 (15,808) 304,192
Balance Sheet as at 31 March 2007 (extract)
$ $Current assetsAccountsreceivable 415,000Less Allowancefordoubtful accounts 12,450 Allowancefordiscounts allowed 8,051 (20,501) 394,499
Balance Sheet as at 31 March 2008 (extract)
$ $Current assetsAccountsreceivable 360,000Less Allowancefordoubtful accounts 7,200 Allowancefordiscounts allowed 7,056 (14,256) 345,744
(c) Possiblereasons:
• Decreasingproportionofaccountsreceivablewrittenoffasbadinpastyears
• Improvementintheoverallcreditworthinessoftradedebtors
• Improvementinthegeneralbusinessenvironment
(Anyacceptablereason)
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10 (a) Allowance for Doubtful Accounts
2006 $ 2006 $Dec 31 Balancec/f 6,810 Jan 1 Balanceb/f 4,200 Dec 31 Profitandloss 2,610 6,810 6,810
2007 2007Dec 31 Balancec/f 12,415 Jan 1 Balanceb/f 6,810 Dec 31 Profitandloss 5,605 12,415 12,415
2008 2008Dec 31 Profitandloss 5,800 Jan 1 Balanceb/f 12,415" 31 Balancec/f 6,615 12,415 12,415
(b) Stephen Co Ltd Balance Sheet as at 31 December 2008 (extract)
$ $Current assetsAccountsreceivable($104,000–$4,750) 99,250Less Allowancefordoubtfulaccounts (6,615) 92,635
11 (a) Dr Allowancefordoubtfulaccounts$900($4,200−$3,300*) Cr Profitandloss$900
*$32,000×2%+$28,000×4%+$14,000×6%+$7,000×10%
Dr Profitandloss$7,736* Cr Allowancefordiscountsallowed$7,736
*$46,000×10%+$32,000×98%×10%(Thisisthemostconservativeestimate.)
(b) $115,964($127,000−$3,300−$7,736)
(c) Usually,thelongeradebtisoutstanding,themorelikelyitistobecomeuncollectible.Therefore,ahigherpercentageisappliedtothoseaccountsthathavebeenoutstandingforalongerperiod(i.e.,olderaccounts).
12X (a) Baddebtsarewrittenoffwhenaccountsreceivablehavebeenprovedtobeuncollectible.Thiswouldhappenwhenadebtorhasgonebankruptandisunabletopaythedebt.
Inaddition,anallowanceistobemadeattheendofthefinancialyearforaccountsreceivablethatarelikelytobecomeuncollectible(i.e.,doubtfulaccounts).Theamountofallowancefordoubtfulaccountsisjustanestimate.
(b) Anincreaseintheallowancefordoubtfulaccountsrepresentsanadditionallossarisingonaccountsreceivablesandisthustreatedasanexpensefortheyear.
(c) Discountsallowedrefertocashdiscountsgiventotradedebtorswhopaywithinthecashdiscountperiod.Inaddition,anallowanceforcashdiscountsismadeattheendofthefinancialyearonaccountsreceivablethatarelikelytobesettledwithinthecashdiscountperiod.Theamountofallowancefordiscountsallowedisjustanestimate.
(d) Adecreaseintheallowancefordiscountsallowedrepresentsareversaloflossarisingfromaccountsreceivablesandisthustreatedasotherrevenuefortheyear.
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(e) Thisisanapplicationoftheprudenceconceptunderaccrualaccounting.Forthesakeofprudence,anallowanceshouldbemadeforpossibleexpensesorlosses,whethertheamountiscertainorjustanestimate.
(f) Thiscouldhappenwhenmoreaccountsreceivableareestimatedtobeuncollectibleandfeweraccountsreceivableareexpectedtobesettledwiththecashdiscountperiod.
Past Exam QuestionsPast Exam Questions
13X (a) Mr Ho Journal
Dr Cr
2005(ii) Mar 31
(iii)" 31
2006(iv)Mar 27
(v) " 31
Baddebts MrTam(debtor)
Profitandloss[($939,000–$6,000)×3%] Provisionfordoubtfuldebts
MrTam(debtor) Baddebtsrecovered
Bank MrTam(debtor)
Provisionfordoubtfuldebts Profitandloss[$27,990–($332,800×2%)]
$6,000
27,990
4,000
4,000
21,334
$
6,000
27,990
4,000
4,000
21,334
(b) (i) Profit and Loss Account for the year ended 31 March 2006 (extract)
$Other incomeDecreaseinprovisionfordoubtfuldebts 21,334Baddebtsrecovered 4,000
(ii) Balance Sheet as at 31 March 2006 (extract)
$Current assetsDebtors 332,800Less Provisionfordoubtfuldebts (6,656) 326,144
(c) Theestimatedamountoftheprovisionfordoubtfuldebtscanbemade:
(i) fromexperienceinpastyears
(ii) bylistingdebtorswhosedebtscanberegardedasdoubtful
(iii)withreferencetothegeneraleconomiccondition
(iv)bypreparinganageingschedulewherethedebtorsareanalysedaccordingtothelengthoftimethatthedebtshavebeenoutstanding
(Anytwopoints)
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