1. The document discusses accounting for debtors (accounts receivable), including definitions, types of debtors, credit control procedures, aging reports, methods of estimating doubtful debts using the allowance method, journal entries for bad debt expense and allowance for doubtful debts, and examples of adjusting the allowance account. 2. It also covers writing off bad debts, recovering previously written off bad debts, and the difference between bad debt and allowance for doubtful debts. 3. The key goal is to properly record, estimate for, and account for uncollectible accounts receivable in accordance with the matching and prudence principles.

1. TOPIC 6:ACCOUNTING FOR ASSET- DEBTORS

3. Receivables Accounts receivable are amounts owed by customers on account. Notes receivable are claims for which formal instruments of credit are issued evidencing the debt. Other receivables include non-trade receivables such as interest receivable, loans, advances and GST receivable.

4. 1. Current Asset: Debtors Credit Control: i. Credit approval - approve the credit only to the appropriate customer ii. Recording – record a complete credit amount in the individual debtors account, before posting to debtors control account and make a frequent checking. iii.Credit policy – the credit policy must be determined before hand in the credit policy to the debtors.

5. >60 days 60 days 30 days Current Period Total Debt Credit Limit Debtors 1,000 1,000 1,000 3,000 5,000 Ali 1,500 2,500 4,000 6000 Ahmed 500 1,000 1,500 3,000 4000 Abu 1. Current Asset: Debtors How to measure the collection of debtors account? This can be done using the ageing report. Refer to the ageing schedule, most probably Abu cannot settle his debt.

6. Accounting for Bad Debt Expense Allowance method Direct write-off method.

7. Methods of Estimating Doubtful Debts when using the Allowance method Percentage of sales – Estimated for expense is based on some measure of sales Percentage of Receivables – Estimate for expense is based on ending accounts debtor and the existing balance in the allowance account.

9. Using the Allowance for BD & Doubtful Debt to write-off Bad Debts Expenses: Example 1: (No Allowance on doubtful debts account:) The information below is about Ainun Enterprise for the year ended 31/12/07. Debtor (before bad debt written off) RM 80,000 Bad Debts written off RM 2,200

10. Cr Dr 2,200 Bad Debt Expenses 2,200 Debtors (being a bad debt written off) 2200 Income Statement 2200 Bad Debt Expenses (posting to Income Statement) Bad debts exp. 2,200 Bal b/d 80,000 Inc. Statement . 2,200 Debtors 2,200 Bal. c/d 77,800 80,000 80,000 2,200 2,200 Journal Entry: Debtors’ a/cBad debts expenses

11. Operation Expenses : 2,200 Bad debts Current Asset 77,800 Debtors 77,800 ( 0) (-) Allow for d/d Presentationin Income Statement: Income Statement for the year ended … Presentation in Balance Sheet: Balance Sheet as at ….

12. Using the Allowance for BD & DD to write-off Bad Debts Expenses: Example 2: (No bad debts written off and Allowance for BD & doubtful debts is created): The information below is about Ainun Enterprise for the year ended 31/12/07. Debtor (before bad debt written off) RM 80,000 Ainun expected that uncollectible debt is 3% from the debtors balance. Workings: Allowance for Bad Debt & Doubtful debt on 31/12/2007 80,000 x 3% = RM 2,400

13. Journal Entry: Allowance for BD & DD a/c Bad debts expenses a/c Cr Dr 2,400 Bad Debt Expenses 2,400 Allowance for BD & DD (being an allowance for d/d for the year) Bad debts exp. 2,400 Bal c/d 2,400 IS 2,400 All d/d 2,400 2,400 2,400

14. Operation Expenses : 2,400 Bad debts Current Asset 80,000 Debtors 77,600 ( 2,400) (-) Allow. for d/d Presentation in Income Statement: Income Statement Presentation in Balance Sheet: Balance Sheet as at….

15. Using the Allowance for BD & DD to write-off Bad Debts Expenses: Example 3: (Decrease in Allowance for BD & DD): The information below is about Ainun Enterprise for the year ended 31/12/07. Debtor (before bad debt written off) RM 80,000 Bad debts written off RM 2,200 Allowance For doubtful debt (1/1/07) RM 2,500 Ainun expected that un-collectible debts is 2% from the debtors balance Workings: Provision for doubtful debt on 31/12/2007 (80,000 – 2,200) x 2% = RM 1,556

16. Cr Dr 2,200 Allowance for BD & DD 2,200 Debtors (being a bad debt written off) 1,256 Bad debts expenses 1,256 Allowance for BD & DD (being a decrease in allowance for doubtful debt) Journal Entry:

17. Balance b/d 2,500 Debtors 2,200 Bad debts expenses 1,256 Balance c/d 1,556 3,756 3,756 Income Stat. All. For BD DD 1,256 1,256 All for BD &DD 2,200 Bal b/d 80,000 Bal. c/d 77,800 80,000 80,000 Allowance for BD & DD a/c Bad debts expenses a/c Debtor a/c

18. Operation Expenses : 1,256 Bad debts Current Asset 77,800 Debtors 76,244 ( 1,556) (-) All for BD & DD Presentation in Income Statement: Income Statement Presentation in Balance Sheet: Balance sheet as at

19. Using the Allowance for Doubtful Debt to write-off Bad Debts Expenses: Example 4: (Increase in Allowance for BD & DD): The information below is about Ainun Enterprise for the year ended 31/12/07. Debtor (before bad debt written off) RM 80,000 Bad debts written off RM 2,200 Allowance for BD & DD (1/1/07) RM 2,000 Ainun expected that uncollectible debts is 5% from the debtors balance Workings: Allowance for BD & DD on 31/12/2007 (80,000 – 2,200) x 5% = RM 3,890

20. Cr Dr 2,000 Allowance for doubtful debt 200 Bad Debt Expenses 2,200 Debtors (being a bad debts written off) 3,890 Bad debts expenses 3,890 Allowance for doubtful debt (Being an increased in the Allowance for BD & DD a/c) Journal Entry:

21. Balance b/d 2,000 Debtors 2,000 Bad debts expenses 3,890 Balance c/d 3,890 5,890 5,890 Income Stat. 4,090 Debtors 200 All for BD & DD 3,890 4,090 4,090 All for BD & DD 2,000 Bal b/d 80,000 Bad debts exp. 200 Bal. c/d 77,800 80,000 80,000 Allowance for BD & DD a/c Bad debts expenses a/c Debtors’ a/c

22. Operation Expenses : 4,090 Bad debts Current Asset 77,800 Debtors 73,910 ( 3,890) (-) All for BD & DD Presentation in Income Statement: Income Statement Presentation in Balance Sheet: Balance sheet as at

23. Using the Allowance for BD & Doubtful Debt to write-off Bad Debts Expenses: Example 5: (Bad debt over Provision): The information below is about Ainun Enterprise for the year ended 31/12/07. Debtor (before bad debt written off) RM 80,000 Bad debts written off RM 800 Allowance For BD & DD (1/1/07) RM 1,650 Ainun expected that un-collectible debts is 1% from the debtors balance Workings: Allowance for BD & DD on 31/12/2007 (80,000 – 800) x 1% = RM 792

24. Cr Dr 800 Allowance for BD & DD 800 Debtors (being a bad debts written off) 58 Allowance for BD & DD 58 Bad debts over provision (Being a bad debt over provision) Journal Entry:

25. Balance b/d 1,650 Debtors 800 Bad debt over prov. 58 Balance c/d 792 1,650 1,650 All for BD & DD 58 Income Stat. 58 All for BD & DD 800 Bal b/d 80,000 Bal. c/d 79,200 80,000 80,000 Allowance for BD & DD a/c Bad debts over provision a/c Debtors’ a/c

26. Other Income: 58 Bad debts over provision Current Asset 79,200 Debtors 78,408 ( 792) (-) Allowance for BD & DD Presentation in Income Statement: Income Statement Presentation in Balance Sheet: Balance sheet as at….

27. Bad Debt Recovered debt that are considered bad are paid back by customer (debtors) for the full amount or half of the amount Example : On 15/6/2007, one of the customers names Ali had paid back his debt for an amount of RM2,000