Help with accounting work please?

Question

I am doing a trial balance and trading account. In the trial balance I have bad debts of £4215 I have two particular things I have to do:

further bad debts to be written off £3114 - would i deduct this amount from the bad debts I got?

Lastly provision for doubtful debts established is 2% - would I add this 2% to the bad debt amount?

Please help, it's for a coursework I'm doing

Answer 1

The reason that you are doing this involves the word "work"

Therefore I suggest that you get on and do some of this strange thing called "work" which is why you are doing the course that you are on.

Answer 2

Step one:

write off bad debts of 3114

Dr Allowance for doubtful debts (3114)

Cr Accounts receivable (3114)

Step two:

Adjustment of bad debts based on 2% of A/R

Dr Bad debts Expense ((A/R-3114)*0.02)

Cr Allowance for doubtful debts ((A/R-3114)*0.02)

Answer 3

This is a general answer:

First, write off the known bad debts of 3114

Debit the Provision for Doubtful Accounts

Credit Accounts Receivable.

Now, look at the balance in Accounts Receivable. Take 2% of that number. That's what the balance should be in the Provision for Doubtful Accounts.

Now you need to make whatever adjustment in the Provision for Doubtful Accounts to get it to be that 2% balance. It should be a credit balance.

The offset to the adjustment to the Provision for Doubtful Accounts is the Bad Debt account.

The balance right now in the Bad Debts account of 4215 is immaterial. When you are done with the 2 steps above, what ever the balance in Bad Debts is whatever it is.

The whole point of the allowance method for accounting for bad debts is to make the balance of accounts receivable as accurate as possible(you write off any KNOWN bad debts.)

You also ALLOW or PROVISION for unknown noncollectable accounts by making the Provision for Bad Debts account equal to 2% of the Accounts Receivable balance.

How does that sound?