Accounting 0452 · IGCSE · Irrecoverable debts and provision for doubtful debts
Irrecoverable debts and provision for doubtful debts — practice question
PG is a trader in electrical components. She has supplied the following information for the year ended 31 July 2022.
Sales journal $360000
Sales returns journal $13300
Trade receivables at 1 August 2021 $28500
Provision for doubtful debts at 1 August 2021 $1140
Cash book summary of totals for the year ended 31 July 2022:
Discount allowed: Trade receivables $6500
Cash: Sales $17000
Bank: Trade receivables $335100
Bank: Trade receivables (dishonoured cheques) $4000
Further information:
1 $900 of trade receivables were written off as irrecoverable debts on 31 July 2022. No other irrecoverable debts arose during the year.
2 The provision for doubtful debts is to be fixed at 4% of trade receivables at 31 July 2022.
(a)[13]
Prepare the following ledger accounts for the year ended 31 July 2022. If needed, show the balance brought down on 1 August 2022.
(b)[2]
Prepare a suitable extract from PG’s statement of financial position at 31 July 2022.
(c)[3]
List three methods PG could use to reduce the likelihood of irrecoverable debts.
(d)[2]
State two factors PG should consider when deciding the provision for doubtful debts.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme.