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By MSMA OCT2012
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Identify and distinguish the different types of receivables.
Explain the terms bad debt, doubtful debt, bad debt
recovered and allowance for doubtful debts.
Describe the accounting entries to record bad debt, bad debtrecovered and allowance for doubtful debts.
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Bad debtexpenses
Bad debt
recovered
Doubtful debt
expenses
Provision fordoubtful debts
(PFDD)
Discount
allowable
Provision for
discountallowable (PFDA)
Presentation in
the Profit andLoss account
Presentation in
the Balance Sheet
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Definition: Amounts of debts, which are considered uncollectableafter all efforts have been made to collect them.
Possible scenarios/reasons that may exist concerning a bad debt:
1. Dishonesty
2. Financial difficulty
3. Passed away
4. Could not be traced
The debtors account may be bad totally or partly bad
Journal entry:
DR : Bad debt expenses
CR : Debtor
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Definition: a debt written off in previous years to be recovered inlater years. It is considered as revenue to the business & creditedtot the income statement.
Journal Entry: alternative 1
DR : Debtor
CR : Bad debt recovered
DR : Cash/Bank
CR : Debtor
Journal Entry:
alternative 2DR : Cash/Bank
CR : Bad debt recovered
The reason for reinstating the debt in the ledger account ofthe debtor is to have detailed history of his/her account as aguide for granting credit in the future
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Definition: the amounts of debts that will probably not becollected
Journal entry:
DR Doubtful Debt expenses
Cr Provision for Doubtful Debts (PFDD)
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Definition: An account showing the expected amounts of debtors at
the balance sheet date who will not be able to pay their accounts.
Journal entry:
DR Doubtful Debt expenses
Cr Provision for Doubtful Debts (PFDD) Calculation:
(please remember that the amount calculated is the amount of
balance c/d in the PFDD a/c for that accounting period)
Debtors (after deducting bad debt
written off) x % of provisions
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A business starts on 1st January 2006 and its financial yearend is 31st December annually. The following table contain an
information regarding the debtors of the company:
Year ended 31st
December
Debtors at the
end of year
Bad debt
written off
during the year
Provision for
doubtful debt
Provision for
discount
allowable
RM RM % %
2006 6000 423 2 32007 7000 510 3 4
2008 7750 604 2 3
2009 6500 610 3 4
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Requirement:
1. Prepare the Bad Debt a/c and PFDD a/c
2. Show all relevant calculation
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Bad debt a/c2006 2006
Dec 31st Debtors 423 Dec 31st Profit & loss a/c 423
2007 2007Dec 31st Debtors 510 Dec 31st Profit & loss a/c 510
2008 2008
Dec 31st Debtors 604 Dec 31st Profit & loss a/c 604
2009 2009
Dec 31st Debtors 610 Dec 31st Profit & loss a/c 610
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Provision for Doubtful Debt a/c
2006 2006
Dec 31st Bal c/d 112 Dec 31st Doubtful Debt exp a/c 112
2007 2007
Dec 31st Bal c/d 195 Dec 31st Bal b/d 112
Doubtful debt exp a/c 83
2008 2008
Dec 31st Reduced in PFDD 52 Dec 31st Bal b/d 195
Bal c/d 143
2009 2009
Dec 31st Bal c/d 177 Dec 31st Bal b/d 143
Doubtful debt exp a/c 34
(increase in PFDD)
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Definition: : the portion of amount owed to us that willprobably be discounted due to early payment (cash discount)
made by debtor.
Journal Entry:
DR Discount allowable
CR Provision For Discount Allowable (PFDA)
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Definition: An account showing the expected amounts of discount at thebalance sheet date that may be given to the debtors.
Journal Entry:
DR Discount allowable
CR Provision For Discount Allowable (PFDA) Calculation:
(please remember that the amount calculated is the amount of balance c/d inthe PFDA a/c for that accounting period)
( Debtors (after deducting bad debt
written off)PFDD ) x % of discount
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Requirement:
1. Prepare the PFDA a/c
2. Show all relevant calculation
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Provision for Discount Allowable a/c
2006 2006
Dec 31st Bal c/d 164 Dec 31st Disc. allowable exp a/c 164
2007 2007
Dec 31st Bal c/d 252 Dec 31st Bal b/d 164
Disc.allowable exp a/c 882008 2008
Dec 31st reduced in PFDA 42 Dec 31st Bal b/d 252
Bal c/d 210
2009 2009
Dec 31st Bal c/d 229 Dec 31st Bal b/d 210
Disc.allowable exp a/c 19
(increase in PFDA)
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Company namesTrading, profit and loss account for the year ended 31st December 20XX
(EXTRACT)
Revenue:
Bad debt recovered xx
Reduced in PFDD xx
Reduced in PFDA xx
Expenses:Bad debt expenses (xx)
Doubtful debt expenses (Increase in PFDD) (xx)
Discount Allowable (Increase in PFDA) (xx)
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Company Name
Balance Sheet as at 31st December 20XX (EXTRACT)
Current AssetDebtors xxx
Less: PFDD (xx)
Less: PFDA (xx)
Net Debtors xxx
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Company names
Trading, profit and loss account for the year ended 31stDecember. (EXTRACT)
Revenue: 2006 2007 2008 2009
Bad debt recovered - - - -Reduced in PFDD - - 52 -
Reduced in PFDA - - 42 -
Expenses:Bad debt expenses 423 510 604 610
Doubtful debt expenses (Increase in PFDD) 112 83 - 34
Discount Allowable (Increase in PFDA) 164 88 - 19
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Company Name
Balance Sheet as at 31st December 20XX (EXTRACT)
Current Asset 2006 2007 2008 2009Debtors 6000 7000 7750 6500
Less: Bad debt (423) (510) (604) (610)
Less: PFDD (112) (195) (143) (177)
Less: PFDA (164) (252) (210) (229)
Net Debtors 5301 6043 6793 5484
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TUTORIAL 1
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TUTORIAL 1
SOLUTION FOR THIS QUESTION
STEP 1: FIND THE YEAR ENDED
STEP 2: FIND THE NET DEBTOR = DEBTOR- BAD DEBT
STEP 3: MAKE A TABLE FOR FINDING BALANCE C/D OR
BALANCE B/D FOR PFDD / PFDA
STEP 4: CONSTRUCT ACCOUNT TO MAKE COMPARE
STEP 5: CONSTRUCT BALANCE SHEET
YEARACC
REC
BAD
DEBT
BAL C/D
(NET DEBTOR)
PFDD
(BAL C/D %)
PFDD
(BAL B/D)
2008
2009
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FORMULA FOR ALLOWANCE FOR DOUBTFUL DEBT(AFDD)
AFDD= % X (TOTAL ACCOUNT RECEIVABLE- BAD DEBT)
YEAR ACC REC BAD DEBTBAL C/D
(NET DEBTOR)
PFDD
(BAL C/D %)
PFDD (BAL
B/D)
2008
2009
SOLUTION 1(i): MAKE A TABLE & CATEGORIZE FOR FIND
PROVISION FOR DOUBTFUL DEBT
=
=
95000
56000450
1680
( - )
( - ) 5700 (6%)
2240 (4%) 570056450
96680
Formula AFDD 2008:
6% x RM 95000
= RM 5700
Formula AFDD 2009:
4% x RM 56000
= RM 2240
3220
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PROVISION FOR DOUBTFUL DEBT
30/6/08 Balance c/d RM 5700 01/7/07 Balance b/d RM 3220
RM 2480
RM 5700 RM 5700
30/6/09 Balance c/d RM 2240 01/7/08 Balance b/d RM 5700
RM 3460
RM 5700 RM 5700
SOLUTION 2(i): RECORD INTO JOURNAL ENTRIES
Doubtful Debt
Doubtful Debt
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FORMULA FOR ALLOWANCE FOR DISCOUNT ALLOWABLE(PFDA)
PFDA= % X (TOTAL ACCOUNT RECEIVABLE- PFDD)
YEAR
BAL C/D
(NET
DEBTOR)
PFDD
(BAL C/D %)
PFDA
(BAL C/D %)
PFDD (BAL
B/D)
2008
2009
SOLUTION 1(ii): MAKE A TABLE & CATEGORIZE
FOR FIND DISCOUNT ALLOWABLE
=
=2240
5700
( - )
( - ) 2679 (3%)
1075 (2%) 267956000
95000
Formula AFDA 2008:
3% x RM 89300
= RM 2679
Formula AFDA 2009:
2% x RM 53760
= RM 1075
1850
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PROVISION FOR DISCOUNT ALLOWABLE
30/6/08 Balance c/d RM 2679 01/7/07 Balance b/d RM 1850
RM 829
RM 2679 RM 2679
30/6/09 Balance c/d RM 1075 01/7/08 Balance b/d RM 2679
RM 1604
RM 2679 RM 2679
SOLUTION 2(ii): RECORD INTO JOURNAL ENTRIES
Discount Allowable
Discount Allowable
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Current Asset 2008 2009
Account Receivable 95000 56000Less: P.F.D.D 5700 2240
Less: P.F.D.A 2679 1075
86621 52685
Balance Sheet as at 30 Jun 2008 and 2009(Extract)
SUKA HATI ENTERPRISE
SOLUTION 3( FINAL STEP ACCORDING QUESTION):
EXTRACTING THE FIGURE THROUGH BALANCE SHEET
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TUTORIAL 2
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YEAR ACC REC BAD DEBTBAL C/D
(NET DEBTOR)
PFDD
(BAL C/D)
PFDD (BAL
B/D)
1/1/07-
31/12/07
1/1/08-
31/12/08
1/1/09-
31/12/08
( - )
SOLUTION 1: MAKE A TABLE & CATEGORIZE
=
=
=
( - )
( - )
4,000,000
4,500,000
4,800,000
5,500
1,300
2,500
3,994,500
4,498,700
3,597,500
51,000
42,000
49,000
51,000
42,000
TUTORIAL 2
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PROVISION FOR DOUBTFUL DEBT
31/12/07 Balance c/d RM 51000 01/1/07 Balance b/d RM 0
31/12/07 Bad debt RM 51000
RM 51000 RM 51000
31/12/08 Balance c/d RM 42000 01/1/08 Balance b/d RM 51000
31/12/08 Bad Debt RM 9000
RM 51000 RM 51000
SOLUTION 2: RECORD INTO JOURNAL ENTRIES
31/12/09 Balance c/d RM 49000 01/1/09 Balance b/d RM 42000
31/12/09 Bad Debt RM 7000
RM 49000 RM 49000
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YEAR 2007 2008 2009
RM RM RM
Gross profit xxx xxx xxx
Add: Revenue
Decrease in provision fordoubtful debt
- 9000 -
Decrease in provision for
discount allowable- - -
Less: Expenses
Increase in provision for
bad debt51000 - 7000
Increase in provision fordiscount allowable
- - -
MAJU AMAR TRADING
Income Statement for 2007, 2008, 2009 (Extract)
SOLUTION 3: CONSTRUCT THE FIGURE THROUGH
INCOME STATEMENT AND BALANCE SHEET
2007 2008 2009
Current Asset xxx xxx xxx
Account Receivable 399450 4498700 3597500
Less: P.F.D.D 51000 42000 49000
393500 4456700 3548505
Balance Sheet as at 31 Disember 2007, 2008 and 2009
MAJU AMAR TRADING
TUTORIAL 3
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TUTORIAL 3
TUTORIAL 3
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Account Receivable = RM25330 RM 330= RM 25000
Bad Debt = RM 330
TUTORIAL 3
YEAR
ACC
REC
BAD
DEBT
BAL C/D
(NETDEBTOR)
PFDD
(BAL C/D%)
2011 ( - )25330 330 25000 500 (2%)=
FORMULA FOR ALLOWANCE FOR DOUBTFUL DEBT(AFDD)
AFDD= % X (TOTAL ACCOUNT RECEIVABLE- BAD DEBT)
SOLUTION 1: MAKE A TABLE & CATEGORIZE
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PROVISION FOR DOUBTFUL DEBT
30/9/08 Balance c/d RM 25000 01/10/07 Balance b/d RM 0
30/9/08 Doubtful debt RM 25000
RM 25000 RM25000
SOLUTION 2: RECORD INTO JOURNAL ENTRIES
SOLUTION 3: EXTRACTING THE FIGURE THROUGH INCOME STATEMENT AND
BALANCE SHEET
YEAR 2008
RM
Gross profit xxx
Add: Revenue
Decrease in provision for doubtful debt -
Decrease in provision for
discount allowable-
Less: Expenses
Increase in provision for
bad debt25000
Increase in provision for
discount allowable -
MANJA HANDICRAFT SHOPPE
Income Statement for 2008 (Extract)
2008
Current Asset xxxAccount Receivable 25000
Less: P.F.D.D 500
24500
Balance Sheet as at 30 september
2008
MANJA HANDICRAFT SHOPPE
( - )