FA – L1 – Q31 – Bad and doubtful debt

Prepare journal entries and ledger accounts for irrecoverable debts and allowance for receivables for Kwame Boateng over two years.

Question

The following information is available for Kwame Boateng:
Year 1
(1) 1 January: Allowance for receivables of GH¢860,000 standing on the books.
(2) 31 December: Trade receivables amount to GH¢15,000,000.
(3) Irrecoverable debts written off during the year amounted to GH¢1,000,000.
(4) An allowance for 7.5% of trade receivables is required.
Year 2
(1) 31 December: Trade receivables, before adjustments are GH¢13,700,000.
(2) Irrecoverable debts to be written off are GH¢1,100,000.
(3) Allowance for 7.5% of receivables is still considered necessary.

Required:
Show the journal entries to record the above and the relevant irrecoverable debt expense and allowance for receivables ledger accounts.

Answer

Year 1 Journal

	Dr GH¢(000)	Cr GH¢(000)
Irrecoverable debts expense a/c	1,000
Receivables a/c		1,000
Irrecoverable debts expense a/c	265
Allowance for receivables a/c		265

Year 2 Journal

	Dr GH¢(000)	Cr GH¢(000)
Irrecoverable debts expense a/c	1,100
Receivables a/c		1,100
Allowance for receivables a/c	180
Irrecoverable debts expense a/c		180

Irrecoverable debts expense a/c

	Year 1
31 Dec	Receivables	1,000	31 Dec S of P or L
31 Dec	Allowance for receivables	265
		1,265
	Year 2
31 Dec	Receivables	1,100	31 Dec Allowance for receivables
			31 Dec S of P or L
		1,100

Allowance for receivables a/c

	Year 1
31 Dec	Receivables	1,000	1 Jan Balance b/d
31 Dec	Balance c/d	1,125	31 Dec Irrecoverable debts expense
		2,125
	Year 2
31 Dec	Receivables	1,100	1 Jan Balance b/d
31 Dec	Balance c/d	1,028	31 Dec Irrecoverable debts expense
		2,128

Tags: Allowance for receivables, Bad Debts, Doubtful debts, Financial accounting, Journal entries, Ledger accounts
Level: Level 1

Topic: Bad and doubtful debt

Uploader: Samuel Duah