Chapter 10- Bad And Doubtful Debts

Question 1

Describe a bad debt and how it should be dealt with

Answer 1

• arises when debtor is unable or unwilling to pay the invoice
• known with some certainty
• debt must be removed / written off

Question 2

What is the double entry for a bad debt

Answer 2

Bad debts expense a/c debited (p&l)

Debtors account credited (b/s)

Question 3

What is the double entry to close the bad debts expense account to the p&l account

Answer 3

P&l debited
Bad debts expense a/c credited

Question 4

Describe a doubtful debt and ways which it may arise

Answer 4

Arises when debt becomes uncertain
- can occur if there are many debtors, law of averages and human nature suggests that a proportion may never be received
- press info hints at possibly bankruptcy/insolvency of a customer
- if debt has remained unpaid for considerable period of time

Question 5

What is the double entry for a doubtful debt?

Answer 5

Bad debts expense a/c is debited

Provision for doubtful debts a/c credited

Question 6

After a provision has been set up it is reviewed each year to determine where it is at the right level

What is the double entry if provision has to increased?

Answer 6

Bad debts expense a/c is debited

Provision for doubtful debts is credited

Question 7

What is the double entry of provision is to be decreased?

Answer 7

• provision for doubtful debts account is debited
• bad debts expense a/c credited

Question 8

What is the double entry when cash is received from a debt previously written off

Answer 8

Bank a/c debited (increase of assets)

Bad expenses a/c credited (decrease in expenses)

Question 9

What is the double entry of a debt which has previously been provided against?

Answer 9

Bank account debited (increase in assets)
Debtors a/c credited (decrease in assets)