Increasing Doubtful Debt Allowance
Question: A businesses accounting policy estimates 5% of its trade
receivables to be unrecoverable. At the year end, 31st December 2021, the
balance on a businesses SLCA after irrecoverable debts have been written off
is £400,000. At the year end, 31st December 2020, the allowance for doubtful
debts is £10000.
Prepare the accounts to show this adjustment for the year 2021
We can see the bal b/d from last year’s
allowance (£10,000).
1.The first step is to work out the amount of doubtful debt so £400,000 (total of SLCA
after irrecoverable debts) *8% = £32000 is expected not to be paid
2.Then we see, £32,000 is higher than the £10,000 of last year’s allowance which
means we must account for an increase in doubtful doubts
3.£32,000-£10,000=£22,000 increase
4. The £22,000 is credited to
increase the balance of the
allowance for doubtful debts
account
Question: A businesses accounting policy estimates 5% of its trade
receivables to be unrecoverable. At the year end, 31st December 2021, the
balance on a businesses SLCA after irrecoverable debts have been written off
is £400,000. At the year end, 31st December 2020, the allowance for doubtful
debts is £10000.
Prepare the accounts to show this adjustment for the year 2021
We can see the bal b/d from last year’s
allowance (£10,000).
1.The first step is to work out the amount of doubtful debt so £400,000 (total of SLCA
after irrecoverable debts) *8% = £32000 is expected not to be paid
2.Then we see, £32,000 is higher than the £10,000 of last year’s allowance which
means we must account for an increase in doubtful doubts
3.£32,000-£10,000=£22,000 increase
4. The £22,000 is credited to
increase the balance of the
allowance for doubtful debts
account
