Bad Debts, Allowance for Doubtful Debts and Debts Recovered

Question 1

what is a bad debt

Answer 1

trade receivables and any other liabilities that will not be received

Question 2

is bad debt and expense or income

Answer 2

expense

Question 3

what journal entries are required to de recognise a bad debt

Answer 3

DEBIT bad debt
CREDIT trade receivables

Question 4

what are bad debts receovered

Answer 4

what was previously labelled as a bad debt has actually been paid

Question 5

examples of why bad debts may be recovered

Answer 5

liquidation of a company meaning they pay back

Question 6

what journal entries are required in the case of bad debts recovered

Answer 6

DEBIT bank
CREDIT bad debts recovered

Question 7

in what period are bad debts expensed

Answer 7

when they occur

even if the related transaction is not in that period

Question 8

what is allowance for doubtful debt

Answer 8

allowance for debts that are not definitely bad

Question 9

how is allowance for doubtful debt calculated

Answer 9

as a percentage of TRs after ALL bad debts have been written off

Question 10

how does the percentage used to calculate bad debts get decided

Answer 10

changes year on year

based on economic climate

Question 11

what are the entries for an INCREASE in allowance for doubtful debt

Answer 11

DEBIT -> Allowance for doubtful debt SPL
CREDIT -> Allowance for doubtful debt SOFP

Question 12

what are the entries for a DECREASE in allowance for doubtful debt

Answer 12

DEBIT -> Allowance for doubtful debt SOFP
CREDIT -> Allowance for doubtful debt SPL