CHAPTER 16
BAD DEBTS AND PROVISIONS FOR DOUBTFUL DEBTS
Question 1
GENERAL JOURNAL
Date Details Dr Cr
$ $
Aug 31 Bad debts 4 690
Bestservice Ltd 3 850
Q&A Ltd 840
Entries to write off bad debts
SALES LEDGER
Dr Bestservice Ltd account Cr
Mar 1 Balance 3 850 Aug 31 Bad debts 3 850
Dr Q&A Ltd account Cr
Mar 1 Balance 840 Aug 31 Bad debts 840
GENERAL LEDGER
Dr Bad debts account Cr
Aug 31 Bestservice Ltd 3 850
31 Q&A Ltd 840
Question 2
GENERAL JOURNAL
Date Details Dr Cr
$ $
Sept 30 Bad debts 2 260
Murray Lee 540
Shantal Watson 1 720
Entries to write off bad debts
SALES LEDGER
Dr Murray Lee account Cr
July 1 Balance 540 Sept 30 Bad debts 540
Dr Shantal Watson account Cr
July 1 Balance 1 720 Sept 30 Bad debts 1 720
GENERAL LEDGER
Dr Bad debts account Cr
Sept 30 Murray Lee 540
30 Shantal Watson 1 720
Question 3
GENERAL JOURNAL
Date Details Dr Cr
$ $
Sept 3 Bestservice Ltd 3 850
Bad debt recovered 3 850
Entries to reinstate customer’s account
SALES LEDGER
Dr Bestservice Ltd account Cr
Sept 3 Bad debts recovered 3 850 Sept 3 Bank 3 850
GENERAL LEDGER
Dr Bad debts recovered account Cr
Dec 31 Income statement 3 850 Sept 3 Bestservice Ltd 3 850
Question 4
GENERAL JOURNAL
Date Details Dr Cr
$ $
Oct 9 Murray Lee 540
Bad debt recovered 540
Entries to reinstate customer’s account
SALES LEDGER
Dr Murray Lee account Cr
Oct 9 Bad debts recovered 540 Oct 9 Bank 540
GENERAL LEDGER
Dr Bad debts recovered account Cr
Dec 31 Income statement 540 Oct 9 Murray Lee 540
Question 5
Year Provision for Amount to be Entry in the provision
doubtful debts entered in the income for doubtful debts
statement account: enter
$ $ debit or credit
1 1 840 1 840 Credit
2 1 960 120 Credit
3 1 760 200 Debit
Question 6
Year Provision for Amount to be Entry in the provision
doubtful debts entered in the income for doubtful debts
statement account: enter
$ $ debit or credit
1 1 200 1 200 Credit
2 900 300 Debit
3 1 400 500 Credit
Question 7
GENERAL JOURNAL
Date Details Dr Cr
Year 1 $ $
Dec 31 Income statement 1 840
Provision for doubtful debts 1 840
entries to create a provision for doubtful debts
Year 2 Income statement 120
Dec 31 Provision for doubtful debts 120
entries to increase the provision for doubtful debts
Year 3 Provision for doubtful debts 200
Dec 31 Income statement 200
entries to decrease the provision for doubtful debts
Dr Provision for doubtful debts account Cr
Year 3 $ Year 1 $
Dec 31 Income statement 200 Dec 31 Income statement 1 840
Year 2
Dec 31 Income statement 120
Income Statement for the year ended 31 December Year 1
$ $
Gross profit xx
Expenses xx
Provision for doubtful debts 1 840
(xx)
Profit for the year xx
Income Statement for the year ended 31 December Year 2
$ $
Gross profit xx
Expenses xx
Increase in provision for doubtful debts 120
(xx)
Profit for the year xx
Income Statement for the year ended 31 December Year 3
$ $
Gross profit xx
Add: decrease in provision for doubtful debts 200
xx
Expenses xx
Expenses xx
(xx)
Profit for the year xx
Statement of financial position at 31 December Year 1 (Extract)
$ $ $
CURRENT ASSETS
Inventory xx
Trade receivables 36 800
less provision for doubtful debts (1 840)
34 960
Statement of financial position at 31 December Year 2 (Extract)
$ $ $
CURRENT ASSETS
Inventory xx
Trade receivables 39 200
less provision for doubtful debts (1 960)
37 240
Statement of financial position at 31 December Year 3 (Extract)
$ $ $
CURRENT ASSETS
Inventory xx
Trade receivables 35 200
less provision for doubtful debts (1 760)
33 440
Question 8
GENERAL JOURNAL
Date Details Dr Cr
Year 1 $ $
Dec 31 Income statement 1 200
Provision for doubtful debts 1 200
entries to create a provision for doubtful debts
Year 2 Provision for doubtful debts 300
Dec 31 Income statement 300
entries to increase the provision for doubtful debts
Year 3 Income statement 500
Dec 31 Provision for doubtful debts 500
entries to decrease the provision for doubtful debts
Dr Provision for doubtful debts account Cr
Year 2 $ Year 1 $
Dec 31 Income statement 300 Dec 31 Income statement 1 200
Year 3
Dec 31 Income statement 500
Income Statement for the year ended 31 December Year 1
$ $
Gross profit xx
Expenses xx
Provision for doubtful debts 1 200
(xx)
Profit for the year xx
Income Statement for the year ended 31 December Year 2
$ $
Gross profit xx
Add: decrease in provision for doubtful debts 300
xx
Expenses xx
Expenses xx
xx
Profit for the year xx
Income Statement for the year ended 31 December Year 3
$ $
Gross profit xx
Expenses xx
Increase in provision for doubtful debts 500
xx
Profit for the year xx
Statement of financial position at 31 December Year 1 (Extract)
$ $ $
CURRENT ASSETS
Inventory xx
Trade receivables 48 000
less provision for doubtful debts (1 200)
46 800
Statement of financial position at 31 December Year 2 (Extract)
$ $ $
CURRENT ASSETS
Inventory xx
Trade receivables 36 000
less provision for doubtful debts (900)
35 100
Statement of financial position at 31 December Year 3 (Extract)
$ $ $
CURRENT ASSETS
Inventory xx
Trade receivables 56 000
less provision for doubtful debts (1 400)
54 600
Question 9
Tricia
Income Statement for the year ended 31 December 2014
$ $
Gross profit 151 270
Add income:
Bad debts recovered 190
151 460
Less expenses
Bad debts 850
Operating expenses 59 690
Rent 24 080
Depreciation 12 760
Provision for doubtful debts 1 350
(98 730)
Profit for the year 52 730
Depreciation: $7000 (equipment) + $5760 (vehicles) i.e. $12 760
Provision for doubtful debts: 5% × $27 000 = $1350
Statement of financial position at 31 December 2014
$ $ $
NON-CURRENT Cost Total Net
ASSETS Deprcn
Vehicles 45 000 21 960 23 040
Equipment 35 000 21 000 14 000
80 000 42 960 37 040
CURRENT ASSETS
Inventory 29 480
Trade receivables 27 000
less provision for
doubtful debts (1 350)
25 650
Other receivables (rent) 1 320
Cash at bank 3 890
60 340
97 380
$ $
CAPITAL 83 640
CURRENT LIABILITIES
Trade payables 11 660
Other payables (operating exp) 2 080
13 740
97 380
Question 10
Patrick
Income Statement for the year ended 31 August 2014
$ $
Gross profit 194 356
Add income:
Bad debts recovered 246
Discounts received 2 071
2 317
196 673
Bad debts 1 475
Discounts allowed 889
Electricity 3 337
Insurance 7 419
Wages and salaries 99 915
Depreciation 16 938
Provision for doubtful debts 918
(130 891)
Profit 65 782
Depreciation: $9000 (fixtures and fittings) + $7937.50 (vehicles), i.e. $16 937.50
rounded to $16 938
Provision for doubtful debts: 5% × $18 360 = $918
Statement of financial position at 31 August 2014
$ $ $
NON-CURRENT Cost Total Net
ASSETS Deprcn
Vehicles 80 000 56 188 23 812
Fixtures and fittings 45 000 36 000 9 000
125 000 92 188 32 812
CURRENT ASSETS
Inventory 58 384
Trade receivables 18 360
less provision for
doubtful debts (918)
17 442
Other receivables (insurance and
electricity) 821
Cash at bank 9 872
86 519
119 331
$ $
CAPITAL 93 988
CURRENT LIABILITIES
Trade payables 22 373
Other payables (wages and
salaries) 2 970
25 343
119 331
Question 11
Magna
Income Statement for the year ended 31 July 2014
$ $ $
Revenue 909 490
less sales returns (6 360)
903 130
Opening inventory 62 330
Add Purchases 568 380
less purchases returns (8 940)
559 440
carriage inwards 4 620
564 060
626 390
Closing inventory (47 370)
Cost of sales (579 020)
Gross profit 324 110
Add income:
Bad debts recovered 130
Discounts received 1 730
Rent received 27 650
29 510
353 620
Less expenses
Bad debts 320
Discounts allowed 450
General expenses 23 685
Wages 142 690
Water charges 16 180
Increase in provision for doubtful debts 125
Depreciation of non-current assets 34 325
(217 775)
Profit for year 135 845
Note: depreciation is $9600 (premises) + $11 600 (equipment) + $13 125 (vehicles),
i.e. $34 325
Increase in provision for doubtful debts is (5% × $18 900, i.e. $945) − $820 = $125
Statement of financial position at 31 July 2014
$ $ $
NON-CURRENT ASSETS Cost Total Net
Deprcn
Premises 480 000 19 200 460 800
Vehicles 70 000 30 625 39 375
Equipment 58 000 23 200 34 800
608 000 73 025 534 975
CURRENT ASSETS
Inventory 47 370
Trade receivables 18 900
Less provision for doubtful (945)
debts
17 955
Other receivables (rent
received due and general
expenses prepaid)) 2 075
Cash at bank 3 080
70 480
605 455
$ $
CAPITAL 567 015
CURRENT LIABILITIES
Trade payables 33 670
Other payables (wages and
water rates) 4 770
38 440
605 455
Question 12
Palm Beach Store
Income Statement for the year ended 31 May 2014
$ $ $
Revenue 502 810
Opening inventory 34 230
Purchases 375 300
409 530
Closing inventory 36 200
Cost of sales (373 330)
Gross profit 129 480
Add income
Bad debts recovered 340
Decrease in provision for doubtful debts 210
Rent received 14 800
15 350
144 830
Less expenses
Administration expenses 8 140
Bad debts 960
Carriage outwards 4 470
Insurance 11 050
Wages 76 570
Depreciation of non-current assets 34 688
(135 878)
Profit for year 8 952
Note: depreciation is $15 000 (premises) + $19 687.50 (equipment and furniture) =
$34 688 (rounded)
Decrease in provision for doubtful debts is old provision $930 − (5% × $14 400, i.e.
$720) = $210
Statement of financial position at 31 May 2014
$ $ $
NON-CURRENT ASSETS Cost Total Net
Deprcn
Premises 500 000 60 000 440 000
Equipment and furniture 140 000 80 938 59 062
640 000 140 938 499 062
CURRENT ASSETS
Inventory 36 200
Trade receivables 14 400
Less provision for doubtful debts (720)
13 680
Other receivables (general expenses) 1 110
50 990
550 052
$ $
CAPITAL 523 712
CURRENT LIABILITIES
Trade payables 16 660
Other payables (wages) 1 190
Bank overdraft 8 490
26 340
550 052
