Module 5 Flashcards
What are bad debts?
Debts that cannot or are highly unlikely to be recovered.
what are doubtful debts?
debts that may not be recovered
Why might there be be bad debts?
- customer is insolvent
- customer has gone into liquidation
- customer has refused to pay for goods/services due to dispute
what are the journal entries when the entity recognises the write-off of a bad debt?
Dr P&L-bad and doubtful debts
Cr Trade debtors (decrease asset)
What are the journal entries when the entity recognises doubtful debts?
They are not written off, instead an allowance for doubtful debts is created.
Dr P&L- bad and doubtful debts
Cr Allowance for doubtful debts
Will doubtful debts still appear on the aged debtors ledger?
Yes!
What will an entity do if they receive cash from a debtor previously written off?
Dr Bank
Cr P&L -bad and doubtful debts (reduces expense)
What will an entity do if they receive cash from a debtor previously included within the allowance of doubtful debts?
It will not adjust the allowance, instead will be adjusted at period end. Record the increase/decrease
