Cambrige Notes: Principles of Accounting: Bad Debts and Provision for Doubtful Debts Example

Cambrige Notes: Principles of Accounting: Bad Debts and Provision for Doubtful Debts Example- Updated 2024

Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: Bad Debts and Provision for Doubtful Debts Example

We have looked at Bad Debts, Provision for Doubtful Debts and Bad Debts Recovered
Now we will look at an example:

A business, which started trading on 1 January 20X7, adjusted its doubtful debt provision at the end of each year on a percentage basis, but each year the percentage rate is adjusted in accordance with the current ‘economic climate’. The following details are available for the three years ended 31 December 20X7, 20X8 and 20X9.

Year	Bad Debts Written off year to 31 December	Debtors at 31 December	Percentage for Doubtful Debts
	$	$	%
20x7	1240	41000	4
20x8	2608	76000	6
20x9	5424	88000	5

You are required to show:

Bad Debts Accounts for each of the three years.
Provision for Doubtful Debts Accounts for each of the three years.
Balance Sheet/Statement of Financial Position extracts as at 31 December 20X7, 20X8 and 20X9.

Solution

Here are the two accounts:

			Bad Debts Account
20x7				20x7
Date	Details	Amount($)		Date	Details	Amount($)
31 December	Debtors Control	1240		31 December	Profit and Loss	1240

20x8				20x8
31 December	Debtors Control	2608		31 December	Profit and Loss	2608

20x9				20x9
31 December	Debtors Control	5424		31 December	Profit and Loss	5424

			Provision for Doubtful Debts Account
20x7				20x7
Date	Details	Amount($)		Date	Details	Amount($)
31 December	Balance c/d	1640				1640
20x8				20x8
31 December	Balance b/d	4560		1 January	Balance b/d	1640
				31 December	Profit and Loss	2920
		4560				4560
20x9						20x9
31 December	Profit and Loss	160		1 January	Balance b/d	4560
31 December	Balance c/d	4400
		4560				4560

And the extracts


20x7	$	$
Debtors	41000
Provision for Doubtful Debts	(1640)
		39360

20x8	$	$
Debtors	76000
Provision for Doubtful Debts	(4560)
		71440

20x9	$	$
Debtors	88000
Provision for Doubtful Debts	(4400)
		83600

NB

Bad Debts have already been written off and deducted from the Debtor’s figures
We used the control account instead of the individual debtor’s account in this instance, this perfectly valid
To learn more go to the discussion of Control Accounts
Only increases and decreases are recorded in the Profit and Loss Account in subsequent years

To access more topics go to the Principles of Accounting Notes.