Page 79 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes (c) When excess amount of the provision is transferred:
Provision for Bad and Doubtful Debts Account Dr.
To Profit & Loss Account
Mr. Ram Lal closes his books on 31 Dec., 05 on that date debtors were 50,000. On the basis of
st
past year experience, this has been a practice to provide for bad and doubtful debts @ 10%.
You are required to journalize the above and prepare the ledger accounts and also show it in the
st
Balance sheet as on 31 Dec 2005
Solution
Journal Entry
Date Particulars L.F. Rs. Rs.
31.12.05 Profit and loss a/c Dr. 5,000
To provision for Bad & Doubtful debts a/c 5,000
Provision for Bad & doubtful debts created @ 10% on
50,000

Ledger Accounts
Provision for Bad and doubtful debts a/c
Date Particulars L.F. Date Particulars L.F.
31.12.05 To Balance c/d 5,000 31.12.05 By P & L a/c 5,000

Balance Sheet
As on 31.12.05
Liabilities Assets
Sundry Debtors 50,000
-provision for Bad & doubtful
debts 5,000 45,000

10. For Discount Provision on Debtors
It is a normal practice in trade to allow discount to customers for prompt payment and it
constitutes a substantial sum. The following general entries will be passed in the final
accounts:
(a) 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 and Loss Account.
(b) 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
(c) When excess amount of provision is transferred:

Provision for Discount on Debtors Account Dr.
To Profit and Loss Account

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