Accounting 0452 · IGCSE · Irrecoverable debts and provision for doubtful debts

Irrecoverable debts and provision for doubtful debts — practice question

Tej trades in goods on credit. His accounting year ends on 28 February. Tej gave the information below. At 1 March 2020 Trade receivables $6250 Other receivables (rent prepaid) $300 For the year ended 28 February 2021 Rent charge for the year $3900 Cheque payments for rent 30 June 2020 $1950 30 November 2020 $2100 At 28 February 2021 Trade receivables $7000 The provision for doubtful debts stood at 4% of trade receivables at 1 March 2020 and 6% of trade receivables at 28 February 2021.
(a)[6]

Prepare the rent payable account for the year ended 28 February 2021. Then balance the account and carry the balance down on 1 March 2021.

(b)[4]

Prepare the provision for doubtful debts account for the year ended 28 February 2021. Then balance the account and bring the balance down on 1 March 2021.

(c)[1]

Name the accounting principle used when the income statement is altered for rent prepaid.

(d(i))[2]

Explain how the realisation principle is applied when Tej’s credit sales are recorded.

(d(ii))[2]

Explain how the prudence principle is applied in maintaining Tej’s provision for doubtful debts.

(e)[5]

Advise Tej whether he ought to charge interest on overdue accounts. Justify your answer.

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