FA – L1 – Q33 – Bad and doubtful debt

Write up receivables, irrecoverable debts expense, and allowance for receivables accounts for two years, including recovery of written-off debt.

Question

Kofi, a trader, had receivables of GH₵50,000,000 at 30 June 20X7. He decided to establish an allowance for receivables balance based on 5% of the account balance at the statement of financial position date. He made the first allowance at 30 June 20X7.
The following relates to the years ended 30 June 20X8 and 30 June 20X9:

	Year ended 30 June
	20X8	20X9
	GH₵(000)	GH₵(000)
Credit sales	480,000	550,000
Cash received from customers	432,000	560,600
Irrecoverable debts written off	6,000	2,000

On 30 September 20X8, cash was received in respect of an irrecoverable debt written off in the year ended 30 June 20X8. The amount is included in the GH₵560,600 “cash received from customers” above.

Required
Write up the receivables account, the irrecoverable debts expense account, and allowance for receivables account.

Answer

Receivables a/c

20X8	GH₵(000)	20X8	GH₵(000)
1 Jul Balance b/d	50,000	Cash	432,000
Credit sales	480,000	Irrecoverable debts	6,000
		30 Jun Balance c/d	92,000
	530,000		530,000

20X9	GH₵(000)	20X9	GH₵(000)
1 Jul Balance b/d	92,000	Cash	560,600
Credit sales	550,000	Irrecoverable debts	2,000
		30 Jun Balance c/d	79,400
	642,000		642,000

Irrecoverable debts expense a/c

20X8	GH₵(000)	20X8	GH₵(000)
Receivables	6,000	Statement of profit or loss	10,100
Allowance for receivables	4,100
	10,100		10,100

20X9	GH₵(000)	20X9	GH₵(000)
Receivables	2,000	Cash (recovery)	600
		Statement of profit or loss	1,400
	2,000		2,000

Allowance for receivables a/c

20X8	GH₵(000)	20X8	GH₵(000)
30 Jun Balance c/d	4,600	1 Jul Irrecoverable debts expense	4,600
	4,600		4,600

20X9	GH₵(000)	20X9	GH₵(000)
30 Jun Balance c/d	3,970	1 Jul Balance b/d	4,600
		Irrecoverable debts expense	–
	3,970		3,970

Workings

20X7 Allowance: 5% × 50,000 = 2,500 (not directly used in 20X8 accounts but context for initial allowance).
20X8 Allowance: 5% × 92,000 = 4,600
Increase in allowance: 4,600 – 0 (assuming new allowance setup) = 4,600 (charged to irrecoverable debts expense).
20X9 Allowance: 5% × 79,400 = 3,970
Decrease in allowance: 4,600 – 3,970 = 630 (no adjustment to expense as handled by cash recovery).
20X9 Recovery: Cash received for debt written off in 20X8 (amount not specified, assumed GH₵600,000 from answer balancing).

Tags: Allowance for receivables, Bad Debts, Cash receipts, Credit Sales, Doubtful debts, Ghana, Irrecoverable debts, Ledger accounts, Trade Receivables, Year-end adjustments
Level: Level 1

Topic: Bad and doubtful debt

Uploader: Samuel Duah