HELP Book Keeping Nightmare

businessboy

Hey all

Been having a complete nightmare of a day trying to get my head around this and still no where near understanding it.

The question ive been given to answer is:

The following is an extract from the Trial Balance of A. Murphy on 31.12.2003

Debtors €16,000 (in Dr column)
Bad Debts Provision €650 (in Cr column)

Show:
(a) Bad Debts Provison A/C for year ended 31.12.2004
(b) Profit & Loss Extract
(c) Balance Sheet extract

(The Bad Debts Provision is to maintained at 5% of Debtors)

I know this is probably really simply but it has me completely stumped.
Thanks to anyone that can shed some light on the matter for me.

J.Ryan

Whats debtors at 31.12.04?

greendom

businessboy wrote: »

Hey all

Been having a complete nightmare of a day trying to get my head around this and still no where near understanding it.

The question ive been given to answer is:

The following is an extract from the Trial Balance of A. Murphy on 31.12.2003

Debtors €16,000 (in Dr column)
Bad Debts Provision €650 (in Cr column)

Show:
(a) Bad Debts Provison A/C for year ended 31.12.2004
(b) Profit & Loss Extract
(c) Balance Sheet extract

(The Bad Debts Provision is to maintained at 5% of Debtors)

I know this is probably really simply but it has me completely stumped.
Thanks to anyone that can shed some light on the matter for me.

You need to work out 5% of the debtors figure provided. Then work out the difference between that and the €650 figure provided.

For part a) you need to show a T a/c for bad debt provision with the starting figure, the movement during the year and then the closing figure (5% of debtors)

For b) The difference between the 2 will appear on your p+l as an expense or a minus expense if the revised provsion is less than 650.

For c) The balance sheet will have the 16,000 - the 5% as a current asset and then the 5% provision as a minus current asset

tenchi-fan

businessboy wrote: »

Hey all

Been having a complete nightmare of a day trying to get my head around this and still no where near understanding it.

The question ive been given to answer is:

The following is an extract from the Trial Balance of A. Murphy on 31.12.2003

Debtors €16,000 (in Dr column)
Bad Debts Provision €650 (in Cr column)

Show:
(a) Bad Debts Provison A/C for year ended 31.12.2004
(b) Profit & Loss Extract
(c) Balance Sheet extract

(The Bad Debts Provision is to maintained at 5% of Debtors)

I know this is probably really simply but it has me completely stumped.
Thanks to anyone that can shed some light on the matter for me.

I assume you mean opening debtors is 13k and closing debtors is 16k.. or maybe the provision is based on opening debtors.. anyway...


Debtors are people who owe you money. They are assets on your balance sheet.

You expect that you won't receive 5% of the money you are owed, so you make a provision. That is, in the balance sheet you show the amount you expect you won't receive. The provision is a liability on your balance sheet.

At the start of the year, 5% of your debtors was €650.
However, at the end of the year your debtors are higher. 16000 * 5% = €800. So you expect that you won't receive €800. You need to show €800 as a liability on your balance sheet - at the moment it is only €650.

You need to increase your provision by €800 - €650 = €150.
--

The €150 is shown as an expense on your p&l. You DEBIT expenses.
The bad debts provision balance will be increased by €150. You CREDIT liabilities.

--

a)
Opening €650
P&L €150
cl bal €800

b)
Not sure of the heading
Increase in provision -€150

c)
Balance Sheet
Debtors 16000
Bad debts provision -800