account receivables

7/29/2019 Account Receivables

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By MSMA OCT2012


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Identify and distinguish the different types of receivables.

Explain the terms bad debt, doubtful debt, bad debt

recovered and allowance for doubtful debts.

Describe the accounting entries to record bad debt, bad debtrecovered and allowance for doubtful debts.


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Bad debtexpenses

Bad debt

recovered

Doubtful debt

expenses

Provision fordoubtful debts

(PFDD)

Discount

allowable

Provision for

discountallowable (PFDA)

Presentation in

the Profit andLoss account

Presentation in

the Balance Sheet


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Definition: Amounts of debts, which are considered uncollectableafter all efforts have been made to collect them.

Possible scenarios/reasons that may exist concerning a bad debt:

1. Dishonesty

2. Financial difficulty

3. Passed away

4. Could not be traced

The debtors account may be bad totally or partly bad

Journal entry:

DR : Bad debt expenses

CR : Debtor


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Definition: a debt written off in previous years to be recovered inlater years. It is considered as revenue to the business & creditedtot the income statement.

Journal Entry: alternative 1

DR : Debtor

CR : Bad debt recovered

DR : Cash/Bank

CR : Debtor

Journal Entry:

alternative 2DR : Cash/Bank

CR : Bad debt recovered

The reason for reinstating the debt in the ledger account ofthe debtor is to have detailed history of his/her account as aguide for granting credit in the future


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Definition: the amounts of debts that will probably not becollected

Journal entry:

DR Doubtful Debt expenses

Cr Provision for Doubtful Debts (PFDD)


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Definition: An account showing the expected amounts of debtors at

the balance sheet date who will not be able to pay their accounts.

Journal entry:

DR Doubtful Debt expenses

Cr Provision for Doubtful Debts (PFDD) Calculation:

(please remember that the amount calculated is the amount of

balance c/d in the PFDD a/c for that accounting period)

Debtors (after deducting bad debt

written off) x % of provisions


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A business starts on 1st January 2006 and its financial yearend is 31st December annually. The following table contain an

information regarding the debtors of the company:

Year ended 31st

December

Debtors at the

end of year

Bad debt

written off

during the year

Provision for

doubtful debt

Provision for

discount

allowable

RM RM % %

2006 6000 423 2 32007 7000 510 3 4

2008 7750 604 2 3

2009 6500 610 3 4


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Requirement:

1. Prepare the Bad Debt a/c and PFDD a/c

2. Show all relevant calculation


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Bad debt a/c2006 2006

Dec 31st Debtors 423 Dec 31st Profit & loss a/c 423

2007 2007Dec 31st Debtors 510 Dec 31st Profit & loss a/c 510

2008 2008


2009 2009



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Provision for Doubtful Debt a/c

2006 2006

Dec 31st Bal c/d 112 Dec 31st Doubtful Debt exp a/c 112

2007 2007

Dec 31st Bal c/d 195 Dec 31st Bal b/d 112

Doubtful debt exp a/c 83

2008 2008

Dec 31st Reduced in PFDD 52 Dec 31st Bal b/d 195

Bal c/d 143

2009 2009


Doubtful debt exp a/c 34

(increase in PFDD)


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Definition: : the portion of amount owed to us that willprobably be discounted due to early payment (cash discount)

made by debtor.

Journal Entry:

DR Discount allowable

CR Provision For Discount Allowable (PFDA)


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Definition: An account showing the expected amounts of discount at thebalance sheet date that may be given to the debtors.

Journal Entry:

DR Discount allowable

CR Provision For Discount Allowable (PFDA) Calculation:

(please remember that the amount calculated is the amount of balance c/d inthe PFDA a/c for that accounting period)

( Debtors (after deducting bad debt

written off)PFDD ) x % of discount


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Requirement:

1. Prepare the PFDA a/c

2. Show all relevant calculation


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Provision for Discount Allowable a/c

2006 2006

Dec 31st Bal c/d 164 Dec 31st Disc. allowable exp a/c 164

2007 2007


Disc.allowable exp a/c 882008 2008

Dec 31st reduced in PFDA 42 Dec 31st Bal b/d 252

Bal c/d 210

2009 2009


Disc.allowable exp a/c 19

(increase in PFDA)


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Company namesTrading, profit and loss account for the year ended 31st December 20XX

(EXTRACT)

Revenue:

Bad debt recovered xx

Reduced in PFDD xx

Reduced in PFDA xx

Expenses:Bad debt expenses (xx)

Doubtful debt expenses (Increase in PFDD) (xx)

Discount Allowable (Increase in PFDA) (xx)


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Company Name

Balance Sheet as at 31st December 20XX (EXTRACT)

Current AssetDebtors xxx

Less: PFDD (xx)

Less: PFDA (xx)

Net Debtors xxx


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Company names

Trading, profit and loss account for the year ended 31stDecember. (EXTRACT)

Revenue: 2006 2007 2008 2009

Bad debt recovered - - - -Reduced in PFDD - - 52 -

Reduced in PFDA - - 42 -

Expenses:Bad debt expenses 423 510 604 610

Doubtful debt expenses (Increase in PFDD) 112 83 - 34

Discount Allowable (Increase in PFDA) 164 88 - 19


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Company Name

Balance Sheet as at 31st December 20XX (EXTRACT)

Current Asset 2006 2007 2008 2009Debtors 6000 7000 7750 6500

Less: Bad debt (423) (510) (604) (610)

Less: PFDD (112) (195) (143) (177)

Less: PFDA (164) (252) (210) (229)

Net Debtors 5301 6043 6793 5484


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TUTORIAL 1


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TUTORIAL 1

SOLUTION FOR THIS QUESTION

STEP 1: FIND THE YEAR ENDED

STEP 2: FIND THE NET DEBTOR = DEBTOR- BAD DEBT

STEP 3: MAKE A TABLE FOR FINDING BALANCE C/D OR

BALANCE B/D FOR PFDD / PFDA

STEP 4: CONSTRUCT ACCOUNT TO MAKE COMPARE

STEP 5: CONSTRUCT BALANCE SHEET

YEARACC

REC

BAD

DEBT

BAL C/D

(NET DEBTOR)

PFDD

(BAL C/D %)

PFDD

(BAL B/D)

2008

2009


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FORMULA FOR ALLOWANCE FOR DOUBTFUL DEBT(AFDD)

AFDD= % X (TOTAL ACCOUNT RECEIVABLE- BAD DEBT)

YEAR ACC REC BAD DEBTBAL C/D

(NET DEBTOR)

PFDD

(BAL C/D %)

PFDD (BAL

B/D)

2008

2009

SOLUTION 1(i): MAKE A TABLE & CATEGORIZE FOR FIND

PROVISION FOR DOUBTFUL DEBT

=

=

95000

56000450

1680

( - )

( - ) 5700 (6%)

2240 (4%) 570056450

96680

Formula AFDD 2008:

6% x RM 95000

= RM 5700

Formula AFDD 2009:

4% x RM 56000

= RM 2240

3220


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30/6/08 Balance c/d RM 5700 01/7/07 Balance b/d RM 3220

RM 2480

RM 5700 RM 5700


RM 3460

RM 5700 RM 5700

SOLUTION 2(i): RECORD INTO JOURNAL ENTRIES

Doubtful Debt

Doubtful Debt


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FORMULA FOR ALLOWANCE FOR DISCOUNT ALLOWABLE(PFDA)

PFDA= % X (TOTAL ACCOUNT RECEIVABLE- PFDD)

YEAR

BAL C/D

(NET

DEBTOR)

PFDD

(BAL C/D %)

PFDA

(BAL C/D %)

PFDD (BAL

B/D)

2008

2009

SOLUTION 1(ii): MAKE A TABLE & CATEGORIZE

FOR FIND DISCOUNT ALLOWABLE

=

=2240

5700

( - )

( - ) 2679 (3%)

1075 (2%) 267956000

95000

Formula AFDA 2008:

3% x RM 89300

= RM 2679

Formula AFDA 2009:

2% x RM 53760

= RM 1075

1850


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PROVISION FOR DISCOUNT ALLOWABLE


RM 829

RM 2679 RM 2679


RM 1604

RM 2679 RM 2679

SOLUTION 2(ii): RECORD INTO JOURNAL ENTRIES

Discount Allowable

Discount Allowable


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Current Asset 2008 2009

Account Receivable 95000 56000Less: P.F.D.D 5700 2240

Less: P.F.D.A 2679 1075

86621 52685

Balance Sheet as at 30 Jun 2008 and 2009(Extract)

SUKA HATI ENTERPRISE

SOLUTION 3( FINAL STEP ACCORDING QUESTION):

EXTRACTING THE FIGURE THROUGH BALANCE SHEET


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TUTORIAL 2


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YEAR ACC REC BAD DEBTBAL C/D

(NET DEBTOR)

PFDD

(BAL C/D)

PFDD (BAL

B/D)

1/1/07-

31/12/07

1/1/08-

31/12/08

1/1/09-

31/12/08

( - )

SOLUTION 1: MAKE A TABLE & CATEGORIZE

=

=

=

( - )

( - )

4,000,000

4,500,000

4,800,000

5,500

1,300

2,500

3,994,500

4,498,700

3,597,500

51,000

42,000

49,000

51,000

42,000

TUTORIAL 2


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31/12/07 Bad debt RM 51000

RM 51000 RM 51000


31/12/08 Bad Debt RM 9000

RM 51000 RM 51000

SOLUTION 2: RECORD INTO JOURNAL ENTRIES


31/12/09 Bad Debt RM 7000

RM 49000 RM 49000


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YEAR 2007 2008 2009

RM RM RM

Gross profit xxx xxx xxx

Add: Revenue

Decrease in provision fordoubtful debt

- 9000 -

Decrease in provision for

discount allowable- - -

Less: Expenses

Increase in provision for

bad debt51000 - 7000

Increase in provision fordiscount allowable

- - -

MAJU AMAR TRADING

Income Statement for 2007, 2008, 2009 (Extract)

SOLUTION 3: CONSTRUCT THE FIGURE THROUGH

INCOME STATEMENT AND BALANCE SHEET

2007 2008 2009

Current Asset xxx xxx xxx

Account Receivable 399450 4498700 3597500

Less: P.F.D.D 51000 42000 49000

393500 4456700 3548505

Balance Sheet as at 31 Disember 2007, 2008 and 2009

MAJU AMAR TRADING

TUTORIAL 3


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TUTORIAL 3

TUTORIAL 3


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Account Receivable = RM25330 RM 330= RM 25000

Bad Debt = RM 330

TUTORIAL 3

YEAR

ACC

REC

BAD

DEBT

BAL C/D

(NETDEBTOR)

PFDD

(BAL C/D%)

2011 ( - )25330 330 25000 500 (2%)=

FORMULA FOR ALLOWANCE FOR DOUBTFUL DEBT(AFDD)

AFDD= % X (TOTAL ACCOUNT RECEIVABLE- BAD DEBT)

SOLUTION 1: MAKE A TABLE & CATEGORIZE


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30/9/08 Doubtful debt RM 25000

RM 25000 RM25000

SOLUTION 2: RECORD INTO JOURNAL ENTRIES

SOLUTION 3: EXTRACTING THE FIGURE THROUGH INCOME STATEMENT AND

BALANCE SHEET

YEAR 2008

RM

Gross profit xxx

Add: Revenue

Decrease in provision for doubtful debt -

Decrease in provision for

discount allowable-

Less: Expenses


bad debt25000


discount allowable -

MANJA HANDICRAFT SHOPPE

Income Statement for 2008 (Extract)

2008

Current Asset xxxAccount Receivable 25000

Less: P.F.D.D 500

24500

Balance Sheet as at 30 september

2008

MANJA HANDICRAFT SHOPPE

( - )

account receivables

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