ZIMSEC O Level Principles of Accounts 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
20x720x7
DateDetailsAmount($)DateDetailsAmount($)
31 DecemberDebtors Control

1240

31 DecemberProfit and Loss

1240

20x820x8
31 DecemberDebtors Control

2608

31 DecemberProfit and Loss

2608

20x920x9
31 DecemberDebtors Control

5424

31 DecemberProfit and Loss

5424

Provision for Doubtful Debts Account
20x720x7
DateDetailsAmount($)DateDetailsAmount($)
31 DecemberBalance c/d

1640

1640

20x820x8
31 DecemberBalance b/d45601 JanuaryBalance b/d1640
31 DecemberProfit and Loss2920

4560


4560


20x920x9
31 DecemberProfit and Loss1601 JanuaryBalance b/d4560
31 DecemberBalance c/d4400

4560


4560


And the extracts

20x7$$
Debtors41000
Provision for Doubtful Debts(1640)

39360

20x8$$
Debtors76000
Provision for Doubtful Debts(4560)

71440

20x9$$
Debtors88000
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.

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