Allowance for doubtful debts

1. Sarah commenced her business on 1 January 2009. She had decided to adjust the
allowance for doubtful debts at the end of each accounting year. The following is the
related information extracted out from her accounts for three accounting years ended 31
December 2009, 2010 and 2011.

Year Bad Debts written off Debtors % of Allowance for

ended 31 ($) balance at 31 doubtful debts
Decembe December
r ($)
2009 328 11,000 5%
2010 900 20,000 6%
2011 1,900 30,000 3%

Required:
Prepare the following for the 3 years ended 31 December 2009, 2010 and 2011:

(a) Bad Debts Account.

(3 marks)
(b) Allowance for Doubtful Debts Account.
(3 marks)
(c) Balance sheet extracts as at 31 December 2009, 2010 & 20111.
(3 marks)

2. On 31October 2010, the sundry debtors of High Company stood at $10,000 and the
balance on the Allowance for Doubtful Debts account at 1 November 2009 was $200.
Of the debtors it was considered that $500 were irrecoverable and should be written off.
It was decided that the Allowance for Doubtful Debts should be made equal to 5% of the
outstanding accounts.

At 31 October 2011, the debtors balance had fallen to $8,000, of which $100 were
considered to be irrecoverable and should be written off. The Allowance for Doubtful
Debts was to be at the same rate as in 2010.

Required:
a) Show the Bad Debts account for the year ended 31 October 2010 and 2011.
(2 marks)

b) Show the Allowance for Doubtful Debts account for the year ended 31 October
2010 and 2011.
(3 marks)

c) Show the relevant figures in the Income Statement for the 2 years 2010 and 2011.
(2 marks)

e) Show the relevant figures in the Balance Sheet for the 2 years 2010 and 2011.
(2
marks)

3. Business often create an allowance for doubtful debts.

a) Of which concept is this an example? Explain your answer. (2 marks)