In estimating the value of debtors, a business has to be prudent since logically not alldebtors will pay their debts. By providing provision for doubtful debt, a business will notoverstate the value of debtors. Ledger EntriesTo create or increasein a provision:DebitProfit & loss accountCreditProvision for doubtful debts15
Decreasein provision:DebitProvision for doubtful debtsCreditProfit & loss accountThe balance on the provision for doubtful debts account is deducted from trade debtors inthe balance sheet.Example:Pak Su prepares accounts to 31 December each year. On 31 December 2000, he decidesto establish a provision for doubtful debts equal to 5% of debtors and to maintain theprovision at 10% of debtors in the future. His debtors and bad debts can be summarisedas follows:Year-endDebtors at year end (before writing off bad debts)RMBad debts to be written offRM31/12/1322,4001,40031/12/1420,7001,20031/12/1525,9003,400Required:a)Make the necessary ledger entries to record Pak Su's bad debts and provision fordoubtful 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.AnswerDebtorsDateParticularRMDateParticularRMBad DebtsDateParticularRMDateParticularRM16
Provision For Doubtful DebtsDateParticularRMDateParticularRMCompany’s NameStatement of Comprehensive Income for the year ended 31 December201320142015Other incomeDecrease in doubtful debtExpensesIncrease in doubtful debtBad debtsCompany’s NameStatement of Financial Position as at 31 December 201320142015Current assetDebtors( - ) Provision For Doubtful DebtsTUTORIAL – TOPIC 317
Question 1B.Jones is in business as a builder’ merchant. The following credit transactions took place duringApril 20X11 AprBought goods on credit from Brick Ltd for RM2752 AprSold goods on credit to Oak Ltd for RM4104 AprBought goods costing RM315 from Stone Ltd on credit7 AprSold goods on credit to Pine Ltd for RM87011 AprBought goods costing RM270 from Slate Ltd on credit15 AprSold goods on credit to Lime Ltd for RM63017 AprBought goods on credit from Brick Ltd for RM27519 AprReceived a credit note for RM120 from Brick Ltd22 AprSent Oak Ltd a credit note for RM22024 AprStone sent us a credit note for RM75 in respect of goods returned27 AprSent 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 relatedledger.Question 2For each of the following accounts, indicate whether it possesses a debit or credit balance. UseDr or Cr.AccountDr or CrSalesAccounts receivableSupplies expenseAccounts payableSupplies inventoryRetained earningsDepreciation expenseDividends payableOrdinary shareNotes payableQuestion 3Indicate 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 418
Use T or F to indicate whether each of the following statements is true or false.