Page 193 - DMGT104_FINANCIAL_ACCOUNTING

Unit 8: Financial Statements

Balance Sheet Notes
As on 31.12.11
Liabilities ( ) Assets ( )
Sundry Debtors 50,000
-provision for
Bad & doubtful debts 5,000 45,000

11. For Discount Provision on Debtors
The provision or reserve made for meeting the loss arising on account of the discount that
will have to be allowed to the debtors who pay their dues promptly is known as provision
for discount on debtors.
(i) When the provision for discount on debtors is created:

Profit & Loss Account Dr.
To Provision for Discount on Debtors Account
Provision for discount on Debtors is subtracted from Sundry Debtors in the assets
side of Balance Sheet and shown in the debit side of Profit & Loss Account.

(ii) When the amount of discount is written off against the Provision for Discount Account:
Provision for Discount on Debtors Account Dr.
To Discount on Debtors Account
(iii) When excess amount of provision is transferred:
Provision for Discount on Debtors Account Dr.

To Profit & Loss Account
Illustration 15: The following figures appear in the books of Shri Hanuman Prasad.
( )
Jan 1 Provision for bad and doubtful debts 2,400
Jan 1 Provision for discount on debtors 1,120
Dec 31 Bad debts written off 940
Dec 31 Discount allowed during the year 1,860
Dec 31 Bad debts recovered 50
Dec 31 Debtors 20,120
Write off further 480 (definitely bad)
Create a provision for discount on debtors @ 2% and also for bad and doubtful debts @ 4% you
are required to journalize the above and Prepare Provision for bad and doubtful debts A/c and
provision for discount on debtors A/c and bad debts A/c & discount A/c.
Solution:

Journal Entries
Date Particulars L.F. ( ) ( )
Dec 31 Provision for Bad & doubtful debts Dr. 940.00
To Bad debts A/c 940.00
(Bad debts transferred.)
Dec 31 Provision for discount on debtors A/c Dr. 1,860.00 Contd...
To Discount allowed A/c 1,860.00
(Discount allowed transferred.)
Dec 31 Bad debts Recovered A/c Dr. 50.00
To Profit & Loss A/c LOVELY PROFESSIONAL UNIVERSITY 50.00 187
(Gain transferred.)
Dec 31 Provision for Bad & doubtful debts A/c Dr. 194.40
To Profit & loss A/c 194.40
(Excess transferred.)
Dec 31 Profit and loss A/c Dr. 377.00
To Provision on discount on debtors A/c 377.00
(Discount on debtors transferred.)