Chapter 2- Bad Debt
-
Upload
adznida-daud -
Category
Documents
-
view
227 -
download
0
Transcript of Chapter 2- Bad Debt
-
8/19/2019 Chapter 2- Bad Debt
1/18
Balance DayAdjustments:
*Bad Debts*Bad Debt Recovered*Allowance for Doubtful
Debts
-
8/19/2019 Chapter 2- Bad Debt
2/18
03/18/16 2
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
-
8/19/2019 Chapter 2- Bad Debt
3/18
3
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
-
8/19/2019 Chapter 2- Bad Debt
4/18
03/18/16 4
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
-
8/19/2019 Chapter 2- Bad Debt
5/18
03/18/16 5
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,
-
8/19/2019 Chapter 2- Bad Debt
6/18
03/18/16 6
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
-
8/19/2019 Chapter 2- Bad Debt
7/18
03/18/16 $
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
-
8/19/2019 Chapter 2- Bad Debt
8/18
8eneral LedgerBad Debt !ecovered Account
nco%e state%ent && Cas" &&
Cas"/Ban# Account
Balance b/d &&&Bad debt !ecovered &
-
8/19/2019 Chapter 2- Bad Debt
9/18
03/18/16 '
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,
-
8/19/2019 Chapter 2- Bad Debt
10/18
03/18/16 10
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,
-
8/19/2019 Chapter 2- Bad Debt
11/18
-
8/19/2019 Chapter 2- Bad Debt
12/18
03/18/16 12
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
-
8/19/2019 Chapter 2- Bad Debt
13/18
03/18/16 13
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
-
8/19/2019 Chapter 2- Bad Debt
14/18
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$
-
8/19/2019 Chapter 2- Bad Debt
15/18
03/18/16 15
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
-
8/19/2019 Chapter 2- Bad Debt
16/18
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,
16
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
-
8/19/2019 Chapter 2- Bad Debt
17/18
1$
;inal resentation+OL for the year endedCCCC,,
Add: Revenue R!Bad Debts recovered &&&
Less: '&pensesBad Debts &&&
-
8/19/2019 Chapter 2- Bad Debt
18/18
03/18/16 18
;inal resentation
+O; As AtCCCC
%urrent Assets: R!
Debtors &&&
#$ Allowance for DD c7d #&&$
@et Debtor &&&