In estimating the value of debtors a business has to

 In estimating the value of debtors, a business has to be prudent since logically not all
debtors will pay their debts. By providing provision for doubtful debt, a business will not
overstate the value of debtors.
Ledger Entries
 To create or increase in a provision:
Debit Profit & loss account
Credit Provision for doubtful debts
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 Decrease in provision:
Debit Provision for doubtful debts
Credit Profit & loss account
 The balance on the provision for doubtful debts account is deducted from trade debtors in
the balance sheet.
Example:
Pak Su prepares accounts to 31 December each year. On 31 December 2000, he decides
to establish a provision for doubtful debts equal to 5% of debtors and to maintain the
provision at 10% of debtors in the future. His debtors and bad debts can be summarised
as follows:
Year-end
Debtors at year end
(before writing off bad debts)
RM
Bad debts to be written off
RM
31/12/13 22,400 1,400
31/12/14 20,700 1,200
31/12/15 25,900 3,400
Required:
a) Make the necessary ledger entries to record Pak Su's bad debts and provision for
doubtful debts.
b) Show relevant extract from the profit and loss for the year to 31 December 2000,
2001 and 2002 and the balance sheet as at that date.
Answer
Debtors
Date Particular RM Date Particular RM
Bad Debts
Date Particular RM Date Particular RM
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Provision For Doubtful Debts
Date Particular RM Date Particular RM
Company’s Name
Statement of Comprehensive Income for the year ended 31 December
2013 2014 2015
Other income
Decrease in doubtful debt
Expenses
Increase in doubtful debt
Bad debts
Company’s Name
Statement of Financial Position as at 31 December
2013 2014 2015
Current asset
Debtors
( - ) Provision For Doubtful Debts
TUTORIAL – TOPIC 3
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Question 1
B.Jones is in business as a builder’ merchant. The following credit transactions took place during
April 20X1
1 Apr Bought goods on credit from Brick Ltd for RM275
2 Apr Sold goods on credit to Oak Ltd for RM410
4 Apr Bought goods costing RM315 from Stone Ltd on credit
7 Apr Sold goods on credit to Pine Ltd for RM870
11 Apr Bought goods costing RM270 from Slate Ltd on credit
15 Apr Sold goods on credit to Lime Ltd for RM630
17 Apr Bought goods on credit from Brick Ltd for RM275
19 Apr Received a credit note for RM120 from Brick Ltd
22 Apr Sent Oak Ltd a credit note for RM220
24 Apr Stone sent us a credit note for RM75 in respect of goods returned
27 Apr Sent Pine Ltd a credit note for RM360.
You are required to make the necessary entries in the books of prime entry and post to the related
ledger.
Question 2
For each of the following accounts, indicate whether it possesses a debit or credit balance. Use
Dr or Cr.
Account Dr or Cr
Sales
Accounts receivable
Supplies expense
Accounts payable
Supplies inventory
Retained earnings
Depreciation expense
Dividends payable
Ordinary share
Notes payable
Question 3
Indicate either debit or credit the account named in parentheses.
1. Borrowed money from a bank (Notes payable), RM10,000. __
2. Bought merchandise on account (Merchandise inventory), RM4,000. ___
3. Paid Arthur Associates RM3,000 owed them (Accounts Payable). ____
4. Received cash from customers on accounts due (Accounts Receivable). ____
5. Bought merchandise on account (Accounts Payable). ___
6. Sold merchandise (Merchandise Inventory), RM1,5000. __
Question 4
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Use T or F to indicate whether each of the following statements is true or false.