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Financial Accounting

Lecture 25

Recording of Provision
Debit Credit Profit and Loss Account Provision for Bad and Doubtful Debts

Financial Accounting

Lecture 25

Extract of Profit and Loss Account

Extract of Profit and Loss to show the Provision for Doubtful


Debts Profit and Loss Account For the year ended -- Gross Profit Less: Expenses Provision for bad debts 90,000 (5,000)

Financial Accounting

Lecture 25

Extract of Balance Sheet

Extract of Balance Sheet to show the Provision


Balance Sheet As At ---------Current Assets Debtors Provision for Bad Debts

100,000 (5,000)

95,000

Financial Accounting

Lecture 25

Recording of Bad Debt

Where provision has already been made for that debt:


Debit Credit Provision for Bad and Doubtful Debts Debtors

No expense will be charged.

Financial Accounting

Lecture 25

Recording Change in Provision

Reducing the provision


Debit Credit Provision for Bad and Doubtful Debts Profit and Loss Account

Increasing the provision


Debit Credit Profit and Loss Account Provision for Bad and Doubtful Debts

Financial Accounting

Lecture 25

Example

Following

information is available for A Ltd. For the year ended June 30, 20--. Bad Debts During the year November 1,100 January 640 April 120 At the year end total debtors amounted to Rs. 68,000 out which Rs. 2,200 is considered to be doubtful / bad. Show the relevant accounts and extracts from Profit and Loss and Balance Sheet.

Financial Accounting

Lecture 25

Example
A Ltd.
Date 20-Nov Jan Apr June 30 Vr. #

Bad Debts Account


Narration / Particulars Bad Debts Bad Debts Bad Debts Transfer to P&L Ledger Code DR. Amount 1,100 640 120

Account Code -CR. Amount Balance Dr/(Cr) 1,100 1,740 1,860 1,860 0

Financial Accounting

Lecture 25

Example
A Ltd. Date 20-Jun 30 Bad and Doubtful Debts Provision for the Year (P&L) Vr. # Narration / Particulars Provision for the Year Ledger Code DR. Amount 2,200 Account Code -Balance Dr/(Cr) 2,200

CR. Amount

A Ltd. Date 20-Jun 30 Vr. #

Provision for Bad and Doubtful Debts (B/S) Narration / Particulars Provision for the Year Ledger Code DR. Amount

Account Code -CR. Amount 2,200 Balance Dr/(Cr) (2,200)

Financial Accounting

Lecture 25

Example
A Ltd. Date 20-Jun 30 Jun 30 A Ltd. Date 20-Jun 30 Vr. # Bad and Doubtful Debts Provision for the Year (P&L) Vr. # Narration / Particulars Provision for the Year Transfer to P&L Provision for Bad and Doubtful Debts (B/S) Narration / Particulars Provision for the Year Ledger Code DR. Amount Ledger Code DR. Amount 2,200 2,200 Account Code -Balance Dr/(Cr) 2,200 0

CR. Amount

Account Code -CR. Amount 2,200 Balance Dr/(Cr) (2,200)

Financial Accounting

Lecture 25

Presentation

A Ltd. Profit and Loss Account for the year ended June 30, 20 Gross Profit ------Less: Expenses Bad Debts (1,860) Provision for bad debts (2,200)

Extract of Balance Sheet As On June 30, 20-Current Assets Debtors Provision for Bad Debts 68,000 (2,200)

65,800

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Financial Accounting

Lecture 25

Example 2

business creates a provision for bad debts @ 5% of its debtors on balance sheet date. On Jan 01, 20-- the balance of Provision was 6,600. During the year debts written off amounted to Rs. 5,400. On December 31, 20--, debtors totaled Rs. 62,000. Show Bad debts Account and provision for bad debts account.

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Financial Accounting

Lecture 25

Solution

Required closing balance of Provision


62000 x 5% = 3,100

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Financial Accounting

Lecture 25

Example 2

Provision for Bad and Doubtful Debts Account (B/S) Date 20-Jan 01 Dec 31 Vr. # Narration / Particulars Opening Balance Bad Debts Provision for bad debts 5,400 Ledger Code DR. Amount

Account Code -Balance Dr/(Cr) (6,600) (1,200) 1,900 (3,100)

CR. Amount 6,600

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Financial Accounting

Lecture 25

Presentation

Extract of Balance Sheet


Current Assets Debtors Provision for Bad Debts 62,000 (3,100)

58,900

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Financial Accounting

Lecture 25

Control Accounts

In

general ledger summarized record is maintained in the account called Control Account. Separate control account is used for Debtors and Creditors. of individual accounts are kept in a separate Register / Ledger called subsidiary ledger.

Details

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Financial Accounting

Lecture 25

Control Accounts

Control accounts are part of Double Entry recording.

Entries in Subsidiary Accounts are not part of double entry.


Total of transactions in subsidiary ledger should match with
the transactions in control accounts.

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Financial Accounting

Lecture 25

Information for Control Accounts - Debtors


Type of Information Source of Information

Opening balance of debtors


Credit Sales Sales Return

List of debtors balances drawn up to the end of previous period.


A separate book is maintained to record individual transactions. Totals are drawn from this book A separate book is maintained to record individual transactions. Totals are drawn from this book

Cheques / Cash List of receipts is extracted from cash and bank book. Received Closing Balance This is the balancing figure, that can also be checked from the list of individual balance of debtors.

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Financial Accounting

Lecture 25

Control Accounts

Cash sales are usually not recorded in control accounts.

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Financial Accounting

Lecture 25

Example

Prepare a Debtors control Account from the following data and work out the closing balance on May 31, of debtors. May 1 Opening Balance 55,000 Totals for May Total Credit Sales 45,000 Returns Inward 8,000 Cheques and Cash received 40,000 Discounts allowed 4,500

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Financial Accounting

Lecture 25

Example
Debtors Control Account Account Code --

Debit Side
Date May01 May31 No Narration Opening Bal Total sales Dr. Rs. Date No 55,000 May31 45,000 May31 May31

Credit Side
Narration Returns Receipts Discounts Bal C/F Cr. Rs. 8,000 40,000 4,500

100,000
May31 100,000

52,500
47,500 100,000

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Financial Accounting

Lecture 25

Example 2

Prepare a Creditors Control Account from the following work out the closing balance on April 30, of creditors. Apr. 1 Opening Balance Totals for May Total Credit Purchases Purchase Return Cheques and Cash paid Discounts received data and 44,500 32,000 6,200 28,800 2,500

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