Bad and doubtful debts

Question 1

Bad debts

Answer 1

An expense account created when an accounts receivable is written off as irrecoverable

Question 2

Allowance for doubtful debts

Answer 2

A negative asset account based on estimates of future bad debts (doesn’t satisfy faith rep)

Satisfies relevance (info likely to impact decision making)

Question 3

Why is an allowance for doubtful debts is made?

Answer 3

Business needs to recognise an amount in the accounting reports that is expected not to be collected from accounts receivable

The allowance recognises that there will be an expected loss of economic benefits

Question 4

Recording allowance for doubtful debts

Answer 4

Bad debts (DR)
Allowance for doubtful debts (CR)

Question 5

Recording bad debt

Answer 5

Allowance for doubtful debts (DR)
GST clearing (DR)
Accounts receivable (CR)

Question 6

Recording bad debt with part receipt of cash

Answer 6

Cash at bank (DR)
Allowance for doubtful debts (DR)
GST clearing (DR)
Accounts receivable (CR)

Question 7

Adjusting the allowance for doubtful debts account

Answer 7

Bad debts (DR)
Allowance for doubtful debts (CR)