Business Question, Re:2007 P2 Final Accounts Question

En

2007 P2 Final Accounts Question , Junior Certificate Higher Level Business.

I was doing this question today as revision for the exam, and I spotted a number of strange things.
Firstly, the dates are incorrect in the question
Secondly, when viewing the examit.ie solution to the question, they don't deduct Bad Debts from Debtors in the Balance Sheet under Current Assets.
If you do, however, deduct Bad Debts from Debtors, the Capital Employed figure and the Total Net Assets figure do not match, resulting in a loss in marks.

I was wondering if deducting Bad Debts from the Debtors figure in the Balance sheet was incorrect, and if so, why? There is an example in my book which shows this is correct, but the solution to the question shows otherwise

Very confused :S

Thanks for reading, and I appreciate any responses.

Slow Show

I can't be entirely sure without doing it what exactly the problem is, but if I was to do that question I'd put Bad Debts under expenses and be done with it. I *think* that's how I've always done it, and my final accounts usually work out.

En

Slow Show wrote: »

I can't be entirely sure without doing it what exactly the problem is, but if I was to do that question I'd put Bad Debts under expenses and be done with it. I *think* that's how I've always done it, and my final accounts usually work out.

The exact wording in my textbook is:
"Bad debts should be treated as an expense in th eProfit & Loss Account. The bad debt is also taken (deducted) from the total of the debtors in the current assets in the Balance Sheet.

Oh boy

Slow Show

En wrote: »

The exact wording in my textbook is:
"Bad debts should be treated as an expense in th eProfit & Loss Account. The bad debt is also taken (deducted) from the total of the debtors in the current assets in the Balance Sheet.

Oh boy

Try it without taking it from the debtors in CA. I got out my papers and bad debts are listed in the trial balance, not the adjustments at the bottom and I don't know why this is, but my teacher always said figures in the trial balance l only go in once.

Desire.

I got it wrong as I did the exact same thing as you. I had Bad Debts as an expense and as a current liability in the balance sheet.

When I left it as just an expense, it balanced. It's strange though, I was pretty sure it's supposed to be in the balance sheet too. When my teacher went through it in class he just had it in the expenses.

Now I am confused.

En

Slow Show wrote: »

Try it without taking it from the debtors in CA. I got out my papers and bad debts are listed in the trial balance, not the adjustments at the bottom and I don't know why this is, but my teacher always said figures in the trial balance l only go in once.

Well, it definitely works when you don't take it away from debtors in CA.
I wonder if it's a mistake in the paper or a mistake in the book?
Considering Desire above me made the same mistake, I'm presuming this is universally included in all books.

I guess it's a "on the day of the exam" thing.
I'll just do my Balance Sheet in pencil ;~;

Desire.

En wrote: »

Well, it definitely works when you don't take it away from debtors in CA.
I wonder if it's a mistake in the paper or a mistake in the book?
Considering Desire above me made the same mistake, I'm presuming this is universally included in all books.

I guess it's a "on the day of the exam" thing.
I'll just do my Balance Sheet in pencil ;~;

I think I know what it is. If the Bad Debts is an adjustment, it goes in as both an expense and a current liability; however, if the figure is given in the trial balance, it is just an expense. Everything in the trial balance is only put in once, while adjustments are generally put in twice.

En

Desire. wrote: »

I think I know what it is. If the Bad Debts is an adjustment, it goes in as both an expense and a current liability; however, if the figure is given in the trial balance, it is just an expense. Everything in the trial balance is only put in once, while adjustments are generally put in twice.

That's most likely correct, at least we have this issue under wraps now.
I really wish they just put it in adjustments instead of making us think that it was one or the other, and not both.

Oh well.

Spidermany

Just from a general business point of view:

Bad debts in the TB means that they have already been written off and the debtors have already been adjusted - (to get there it was dr bad debts and cr debtors)

Bad debts in the adjustments means that after the TB was prepared the list of debtors was reviewed and more bad debts were identified. They haven't been adjusted yet - so you would still have to do the entry.

So you could have bad debts in the TB and more bad debts listed in the adjustments. The wording of the adjustment is the key.

In real life this would usually happen when the proprietor sits down with the accountant to discuss the figures and they decide to write off even more debtors.

Good luck with the exams.

Sophia91

Bad debts is an expense and shouldn't be included in the balance sheet. Provision for bad debts is taken away from debtors and isn't an expense, but an actual bad debt has definitely occurred and therefore is an expense for the business!

Spidermany

Sophia91 wrote: »

Bad debts is an expense and shouldn't be included in the balance sheet. Provision for bad debts is taken away from debtors and isn't an expense, but an actual bad debt has definitely occurred and therefore is an expense for the business!

The treatment for bad debts written off is Dr Bad Debts and Cr Debtors in the year of write off, and you would no longer include that debt in the list of debtors. This is a once off event and needs never be adjusted again unless the debtor subsequently pays.


The initial treatment for a provision is Dr Bad Debts Provision in the P&L and Cr Debtors in the B/S, (you would show the provision as a minus at the bottom of the list of debtors). This only happens once, in the first year of making the provision, after that only changes to the provision are reflected in the P&L.

Usually changes would happen if the provision is a general provision, eg based on a % of the final debtors figure. As debtors change from year to year so would a general provision change from year to year, and the CHANGE is reflected in the P&L either as a debit if the provision increases or a credit if the provision decreases.

OsamaObama321

Ok just to clarify in Final A/C and Balance Sheet you add Gains Due and Expenses prepaid and they go to Current Assets, and Gains Prepaid and Expenses due you minus and they go to Current Liabilities?

Desire.

OsamaObama321 wrote: »

Ok just to clarify in Final A/C and Balance Sheet you add Gains Due and Expenses prepaid and they go to Current Assets, and Gains Prepaid and Expenses due you minus and they go to Current Liabilities?

Exactly!