ADJUSTMENT

Chapter bad debts, provisions for

doubtful debts, and bad

6
debts recovery

DPA 1 0 1 3
 LEARNING OBJECTIVES
AT THE END OF THE CLASS, STUDENTS
WILL ABLE TO :
Define bad debts, provisions for doubtful
debts, and bad debts recovery
Calculate the bad debts, provisions for
doubtful debts, and bad debts recovery
Apply the transactions into ledgers
Show the transactions of bad debts,
provisions for doubtful debts and bad debts
recovery in the financial statements.

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 Credit Sales
Many entities rely on credit sales as basis of
their operations

To generate more sales

Why would a business sell on credit?

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Credit Sales
Many entities rely on credit sales as basis of
their operations

Bad Debts!

What would the cost be of selling on credit?

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REASON

BAD DEBTS

PASSED
BANKRUPTCY RUNAWAY
AWAY

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 DEBTS

Doubtful Bad Debt

Bad recovery
Debt Debt

payment received
after it has been
not sure if the designated as
the debt will debt can be uncollectible
not be repaid repaid

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Accounts Receivable

We can now look at the accounting

entries for Bad Debts
Journal:

Particulars Dr Cr
Bad debts xx
Debtors/account receivable xx

Ch8D - Bad debts

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QUESTION 1

The following information was taken from the book of DPR company.
The accounting period is for one year .

Trial balance as at 31 December 2015

Dr (RM) Cr (RM)
Debtors 5,500
Provision for doubtful debts 126

Additional information:

(a) Bad debts of RM500 from debtors must be written off.

(b) Provision for doubtful debts is 5% of debtors
(c) Bad debt recovery RM50

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 Journal:

Particulars Dr Cr
Bad debts 500
Debtors 500

Profit and Loss(extract) for the year ended 31 Dec 2015

Expenses:
Bad debts 500

Statement of Financial Position(extract) as at 31 Dec 2015

Current assets: RM
Debtors (5,500 - 500) 5,000

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 Unrecorded bad
debts (additional
Information)

% (RECEIVABLE ACC BAD DEBTS)= X

Journal:

Particulars Dr Cr
doubtful debts-expense xx
Provision for doubtful debts xx
(increase)
Particulars Dr Cr
Provision for doubtful debts xx SOFP
doubtful debts-revenue xx
(decrease)
Total XX
Less : opening balance AFDD X
increase or decrease XX
SOCI
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Journal:

Particulars Dr Cr
doubtful debts 376
PFDD 376

Statement of Financial Position(extract) as at 31 Dec 2015

Current assets: RM
Debtors (5,500 - 500) 5,000
Less: PFDD (250)
4,750

Profit and Loss(extract) for the year ended 31 Dec 2015

Expenses:
doubtful debts 376
SOFP

Working: 5% x (5,500 - 500) = RM250

Total 250
- Bal PFDD (126) SOCI
INCREASE BY 376

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Journal:

Particulars Dr Cr
Cash 50
Bad debts recovery 50

Profit and Loss(extract) for the year ended 31 Dec 2015

Revenue
Bad debts recovery 50
Statement of Financial Position(extract) as at 31 Dec 2015
Current assets: RM
Cash 50

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 Adjustment SOCI SOFP
Nominal Account
Dr Cr Revenues Expenses Current Asset
bad debts bad debts Debtors + -
Allowance/Provision for doubtulfull debt increase doubtful debts AFDD + -
Allowance /Provision for doubtulfull debt decrease AFDD doubtful debts + -
bad debts recovered cash bad debts recovered + +

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FOOD FOR THOUGHT.

-ALBERT EINSTEIN -

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