Bad Debts

rathmaniacal

I have been studying and found a problem relating to bad debts that I cannot quite grasp....so I will leave it to the wisdom of the board:

Joe Blow's Trial Balance at 31 March 2007 shows total Debtors of £244,000 and a total provision for doubtful debts of £5960. It was decided to carry forward at 31 March 2007 a specific provision of 100% on a debt of £3200 and a general provision of 1% of remaining debtors. It was also decided to write off debts of £4000 which had been fully provided for at 1 April 2006.
What is the charge to the firms income statement for bad and doubtful debts for the year ended 31 March 2007?

The solution that is given is that they open the Bad Debts provision account and enter the following Debits:
-The £4000 write off
-The £3200 write off
-1% of the remaining debtors..£2368

and the following Credits:
-The original provision of £5960 (which I understand)
-Bad and Doubtfuk debt expense £3608

I dont get what happened there...when a debt is written off, shouldn't that be debited to the Bad Debts Expense account and credited to the Receivables?
I am not sure exactly what was happening above.

whatawaster

rathmaniacal wrote: »

I have been studying and found a problem relating to bad debts that I cannot quite grasp....so I will leave it to the wisdom of the board:

Joe Blow's Trial Balance at 31 March 2007 shows total Debtors of £244,000 and a total provision for doubtful debts of £5960. It was decided to carry forward at 31 March 2007 a specific provision of 100% on a debt of £3200 and a general provision of 1% of remaining debtors. It was also decided to write off debts of £4000 which had been fully provided for at 1 April 2006.
What is the charge to the firms income statement for bad and doubtful debts for the year ended 31 March 2007?

The solution that is given is that they open the Bad Debts provision account and enter the following Debits:
-The £4000 write off
-The £3200 write off
-1% of the remaining debtors..£2368

and the following Credits:
-The original provision of £5960 (which I understand)
-Bad and Doubtfuk debt expense £3608

I dont get what happened there...when a debt is written off, shouldn't that be debited to the Bad Debts Expense account and credited to the Receivables?
I am not sure exactly what was happening above.

Current Bad Debt Provision is 5960
New Bad Debt Provision is 5568 (3200+2368)

That's a decrease of 392 from last year.

So your first journal will be as follows:

Dr Bad Debt Provision (BS) 392
Cr Bad Debt Provision (P&L) 392

Then another journal to write off the bad debt

Dr Bad Debts (P&L) 4000
Cr Debtors (BS) 4000

rathmaniacal

Thank you...it was the language that threw me in the end...that makes it clear.....