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

YearBad Debts Written off year to 31 DecemberDebtors at 31 DecemberPercentage for Doubtful Debts
\$\$%
20x71240410004
20x82608760006
20x95424880005

You are required to show:

1. Bad Debts Accounts for each of the three years.
2. Provision for Doubtful Debts Accounts for each of the three years.
3. 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