CHAPTER 12 - BAD DEBT

Question 1

What happens to the Bad Debt Write Off account (Nominal Ledger) at year end

Answer 1

The amount is credited by the total amount (to bring it back to zero) and charged to the P&L as an expense

The asset (debtors) will already have been credited when the write off was done so the value on the Blanace sheet will be less

Question 2

When and how is a Provision for Bad/Doubtful debts recorded in the final accounts in the first year required?

Answer 2

It’s a note to the trial balance

1. Work out provision (% of debtors figure)
2. Credit the Provision for Bad Debts account
3. Charge to P&L as an expense
4. Deduct from the Debtors figure on Balance Sheet

Question 3

How are increases and decreases to the provision for bad debts recorded in subsequent years?

Answer 3

Work out provision for current year (% of Debtors)

Work out difference to previous year - then

If Increased

1. Credit only the difference to the Provisions account
2. Charge only the difference to the P&L as an expense
3. Deduct the full provision from the Debtors value on the Balance Sheet

If Decreased

1. Debit only the difference to the Provisions account
2. Add only the difference to the P&L as additional income
3. Deduct the full provision from the Debtors value on the Balance Sheet