Chapter 14

Question 1

Bad debts and Allowance for Doubtful debts

Answer 1

Bad debts - Expense account created when an accounts receivable is written of as irrecoverable

Allowance for doubtful debts - A negative account based on predictions of future bad debts

Question 2

Recording Bad and Doubtful Debts

Answer 2

Bad Debts Expense - Debit
Allowance for doubtful debts - Credit

Faithful Rep - Amount recognised should be as accurate as possible in order to be true to the demands of faithful rep

Relevance - potential losses created by future bad debts are a relevant expense to users of accounting reports

Question 3

Writing off debts

Answer 3

Allowance for doubtful debts - Debit
GST Clearing - Debit
Accounts Receivable - Name - Credit

Question 4

Writing off debts - partial payment

Answer 4

Cash at bank - Debit
Allowance for doubtful debts - Debit
GST clearing - Debit
Accounts Receivable - Name - Credit

Question 5

Adjusting Allowance for Doubtful Debts

Answer 5

Allowance for doubtful debts - General Ledger 
Accounts Receivable - Debit 
Balance Debit 
Balance - Credit 
Bad debts Expense - Credit 

Bad Debts Expense
Allowance for doubtful debts - Debit

Verifiability not satisfied as is an estimate of future events
Relevance as recognises potential for credit sales not being collected
Faithful rep - situation being faced by a business