My doubt is regarding specific provision of Doubtful Debts/
Q) On 1/11/1999, Lin Yew's Provision for doubtful debts account had a balance of $3500.
This was made up of a general provision of $2000, which was 2% of all his debtors and a further expected loss of $1500, the total amount owed by Lau Chuen, who had been declared bankrupt.
on 30/01/2000, Lin Yew received payment from Lau Chuen of $0.30 in the $ in final settlement of the debt.The remainder of the debt is written off.
<>For the year ended 31/10/2000, prepare the necessary Ledgers.
Tanx in advance.
Ledger entries for Provision for bad debts A/c:
1. firstly write the balance of 3500 on the credit side as bal b/f
2. then calculate the provision: 2000*2% =200
3. transfer this amount to the debit side as P/L A/C
4. close the account by writing of the difference between both sides, where the difference is coming on the debit side with the amount of 3300.
5. carry that amount to the next year
Ledger entries for Bad debts A/c:
we have to write out the remainder of bad debt that was written off as after a month Lau Chuen decided to pay (0.30 of 1500) in final settlement of his debt. So the remaining amount of (0.70 of 1500) will still be considered as a bad debt.
transfer that bad debt amount of (1500x0.70)=1050 on the debit side along with the debtor's name Lin Yew. Done