Question

1)At the end of BCD's financial year, the company has debtors of $60,000 & a provision for doubtful debts of $5,500. It was proposed to maintain provision for doubtful debts at 10%. What will be the amount to be passed to the income statement?

Answer 1

Debtors balance at the end of the final year = $60,000

Existing provision for doubtful debts = $5,500

Proposed provision = 10 % of Debtors

= $60,000*10/100 = $6,000

So the further amount to be transferred from current years income to provision for doubtful debts account =$500

The journal entry will be;

Profit and Loss A/C Dr $500

To, Provision for Doubtful Debts A/C $500

The income statement will be as follows:

Income Statement

Dr               Cr

Particulars	Amount	Particulars	Amount
Provision for Doubtful Debts (new) $6,000 Less: Provision for Doubtful Debts(old) ($5,500)	$500

Provision for Doubtful Debts Account

Particulars	Amount	Particulars	Amount
To, balance c/d	$6,000	By, balance b/b By, Profit and Loss A/C	$5,500 $500
	$6,000		$6,000