Bad Debts and Doubtful Debts
This month we feature a topic that often causes students some difficulty, that of Bad Debts and a provision for Doubtful Debts.
The writing off procedure for a bad debt is often handled competently by students in an examination environment but raising an initial provision for bad debts and its subsequent revision in the form of an increase or decrease can be difficult to deal with.
This paper therefore should be of particular interest to our registered students preparing for both the manual and computerised tests of competence together with serving as a refresher for those of you as members in practice that need to deal with the practical application of this interesting concept. If you are waiting for the results of the October examinations, I do so hope that your journey was successful. Dr Philip E Dunn
Head of Education
Trainee Certified Bookkeepers need to develop competence in the procedure for writing off a bad debt and also dealing with the creation of a provision for doubtful debts together with its review on an annual basis.
As an examiner I find this an area that often causes difficulty, however if you master the principles any examination question on the topic will be easily understood. This short paper will I am sure be of interest not only to our student audience but as a refresher to those of you in practice that may be required to deal with this concept. In most businesses debtor balances represent an important element of working capital. Accounting principles dictate that the supply of goods or services is accounted for as sales, at the point at which the buyer has a legal obligation to pay for them. Total debtors represent the value of credit sales for which payment has yet to be received.
An obligation and certainly of payment differ, as payment for a variety of reasons is not always forthcoming. The customer may have become insolvent or is experiencing cash flow problems. Accounting concepts...
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