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bad debts provision query
02-08-2011, 12:20 AM
Post: #1
bad debts provision query
hi, i'm studying an accounts book and i would just like to check i'm understanding the bad debts provision section. Any help would be great!

A business has its financial year from jan 1 to dec 31. At the end of the first year, and after all bad debts have been written off, debtors amounts to 6000, and the 2% provision for bad debts is 120. On the balance sheet at the end of the 2nd year, the debtors are 7000 (all bad debts again written off). The bad debts provision goes up 20, so 140 is deducted from 7000 on bal sheet.

i have a couple of questions

1)is it correct that from the beginning to the end of the 2nd year the debtors have not increased by 7000, but only 1000 (from 6000 to 7000)??

2)say the capital balance at the start of the 2nd year (jan 1) was 4000. Is it correct that if there had not been a provision for bad debts at the end of the 1rst year, the profits would not have been decreased, and therefore your capital balance at the start of the 2nd year would have been 4120??

i'm pretty sure i'm right but not 100%

thanks very much!
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02-15-2011, 03:57 AM
Post: #2
 
salam mk10018.

well accorrding to my knowledge, concerning Q.2 u are right about that coz if there was no provision, then your profit will be higher by 120, and when you add that profit to capital balance, definitely your cap. balance will be 4120.

regarding Q.1 debtors have increased by the Gross amount and not by the Net amount (Net of Provision). So you're right.

well this is according to my knowledge.. any other opinion will be appreciated.
Regards
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