Bad debt and Allowance for Doubtful debt

Exercise

1. During the year to 31 December 20X6,the following debts are found to be bad and are written off on the dates shown:

9 March T Wright, £8630 May S O’Connor, £11125 June C Smith, £7510 October S Proctor, £39

Show the bad debts account and the effect on the profit and loss account for the year ended 31 December 20X6.

2. The following are the total figures for debtors at the end of each financial year. The provision for doubtful debts is to be maintained at 4% of debtors at the year-end.

Year ended 31 December Value of debtors (£)20X1 £12,00020X2 £15,00020X3 £14,000

Assuming no provision had previously existed you are required to:

1. Construct the provision for doubtful debts account for 20X1, 2 and 3.2. Show the relevant entries on the profit and loss account for the year ended 31

December 20X1, 2 and 3.3. Show the debtors on balance sheet extracts as at 31 December 20X1, 2 and 3.

3. On 1 July 20X6 there was a balance of £600 in the Provision for Doubtful Debts Account and it was decided to maintain the provision at 5% of the debtors at each year-end. The debtors at 30 June for the next three years were:

  £20X7 15,00020X8 10,00020X9 10,000

Show the provision for doubtful debts account for the period 1.7.X6 to 30.6.X9

4. As at 1 April 20X8 we were owed £650 from Paul Evans. On 26 July Evans was declared bankrupt. A payment of 35p in the £ was received in full settlement. The remaining balance was written off as a bad debt.

Write up the account of Evans, as it would appear in the Sales Ledger

5. In a new business during the year ended 31 December 20X5 the following debts are found to be bad and are written off on the date shown:

28 February          N Johnston           £8727 August             M Johnson            £3217 September       D Scaife                £112

Show the bad debts account for the year ended 31 December 20X5

6. The debtors figures below have been extracted from the end of year final accounts of Hope Ltd, for a four –year period:

20X1 £4,00020X2 £6,00020X3 £6,00020X4 £3,000

The directors have decided to create a provision for doubtful debts equal to 4% of outstanding debtors at the year-end.

Construct the provision for doubtful debts account for this period of time – assuming no prior provision existed in the books of Hope Ltd.