FA – L1 – Q32 – Bad and doubtful debt

Write up irrecoverable debts and allowance for receivables accounts for three years, including financial statement extracts.

Question

Nana makes allowance for receivables at varying percentages based on statistical analysis and the level of outstanding trade receivables. The result of this policy for the last three years is as follows.

Year to December	20X6	20X7	20X8
	GH₵(000)	GH₵(000)	GH₵(000)
Trade receivables at the year end (before adjusting for any irrecoverable debts)	196,860	151,020	216,020
Estimated irrecoverable debts (accounts in liquidation)	1,860	1,020	6,020
Allowance for receivables (%)	5%	6%	7.5%

The allowance for receivables at 1 January 20X6 was GH₵10,000.

Required
Write up the irrecoverable debts expense account and allowance for receivables account for each of the three years. Show the relevant extracts from the statement of financial position for each of the three years.

Answer

Irrecoverable debts expense a/c

20X6	GH₵(000)	20X6	GH₵(000)
Trade receivables	1,860	Statement of profit or loss	11,695
Allowance for receivables	9,835
	11,695		11,695

20X7	GH₵(000)	20X7	GH₵(000)
Trade receivables	1,020	Statement of profit or loss	1,020
Allowance for receivables	–
	1,020		1,020

20X8	GH₵(000)	20X8	GH₵(000)
Trade receivables	6,020	Statement of profit or loss	12,220
Allowance for receivables	6,200
	12,220		12,220

Allowance for receivables a/c

20X6	GH₵(000)	20X6	GH₵(000)
		1 Jan Balance b/d	10,000
31 Dec Balance c/d	19,835	Irrecoverable debts expense	9,835
	19,835		19,835

20X7	GH₵(000)	20X7	GH₵(000)
Irrecoverable debts expense	–	1 Jan Balance b/d	19,835
31 Dec Balance c/d	19,835
	19,835		19,835

20X8	GH₵(000)	20X8	GH₵(000)
		1 Jan Balance b/d	19,835
31 Dec Balance c/d	26,035	Irrecoverable debts expense	6,200
	26,035		26,035

Statement of financial position extracts

At 31 December	20X6	20X7	20X8
	GH₵(000)	GH₵(000)	GH₵(000)
Trade receivables	196,860	151,020	216,020
Less: Allowance for receivables	(19,835)	(19,835)	(26,035)
	177,025	131,185	189,985

Tags: Accounting entries, Allowance for receivables, Bad Debts, Doubtful debts, Financial Statements, Ghana, Irrecoverable debts, Ledger accounts, Trade Receivables, Year-end adjustments
Level: Level 1

Topic: Bad and doubtful debt

Uploader: Samuel Duah