1. The document discusses accounting for debtors (accounts receivable) including definition, types of debtors, credit control procedures, aging reports, methods of estimating doubtful debts using allowance method and direct write-off method. 2. It provides examples of journal entries for bad debt expense, allowance for doubtful debts, and bad debt recovery. 3. Key aspects covered are calculation of allowance for doubtful debts, entries to write-off bad debts against allowance, and treatment of over/under-provisioning of allowance.

1. TOPIC 6:ACCOUNTING FOR ASSET- DEBTORS

2. 1. Current Asset: DebtorsDefinitionA debtor is a person who has an obligation to pay debt to a business resulting from the activities of buying stocks2 types of debtors:i. Trade Debtors- debtors from sales of stock ii. Debtors – from sales of assets.

3. ReceivablesAccounts 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: DebtorsCredit 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. >60days60days30 daysCurrentPeriodTotal DebtCreditLimitDebtors1,0001,0001,0003,0005,000Ali1,5002,5004,0006000Ahmed5001,0001,5003,0004000Abu1. Current Asset: DebtorsHow 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 ExpenseAllowance methodDirect write-off method.

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

8. Allowance for Doubtful Debt:What is the difference between the bad debt and allowance for doubtful debt? - Bad debt is a debt that cannot be collected within the accounting period. Allowance for doubtful debt is an expected debt that cannot be collected within accounting period.Comply with the concept of:i. Matching ii. PrudenceThe journal entry to record bad debts expenses:Bad Debt ExpensesDr Allowance for Doubtful Debts Cr

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 80,000Bad Debts written off RM 2,200

10. CrDr2,200Bad Debt Expenses2,200 Debtors(being a bad debt written off)2200Income Statement 2200 Bad Debt Expenses(posting to Income Statement) Bad debts exp. 2,200Bal b/d 80,000Inc. Statement . 2,200Debtors 2,200Bal. c/d 77,800 80,000 80,000 2,200 2,200Journal Entry:Debtors’ a/cBad debts expenses

11. Operation Expenses : 2,200Bad debtsCurrent Asset 77,800Debtors77,800 ( 0) (-) Allow for d/dPresentationin 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 80,000Ainun 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/cBad debts expenses a/cCrDr2,400Bad Debt Expenses2,400 Allowance for BD & DD(being an allowance for d/d for the year)Bad debts exp. 2,400Bal c/d 2,400 IS 2,400All d/d 2,400 2,400 2,400

14. Operation Expenses : 2,400Bad debtsCurrent Asset 80,000Debtors77,600( 2,400) (-) Allow. for d/dPresentation in Income Statement:Income StatementPresentation 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 80,000Bad debts written off RM 2,200Allowance For doubtful debt (1/1/07) RM 2,500Ainun 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. CrDr2,200Allowance for BD & DD 2,200 Debtors(being a bad debt written off)1,256Bad debts expenses 1,256 Allowance for BD & DD(being a decrease in allowance for doubtful debt)Journal Entry:

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

18. Operation Expenses : 1,256Bad debtsCurrent Asset 77,800Debtors76,244 ( 1,556) (-) All for BD & DDPresentation in Income Statement:Income StatementPresentation 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 80,000Bad debts written off RM 2,200Allowance for BD & DD (1/1/07) RM 2,000Ainun 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. CrDr2,000Allowance for doubtful debt 200Bad Debt Expenses 2,200 Debtors(being a bad debts written off)3,890Bad 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 2,000Debtors 2,000 Bad debts expenses 3,890Balance c/d 3,890 5,890 5,890Income Stat. 4,090Debtors 200 All for BD & DD 3,890 4,090 4,090All for BD & DD 2,000Bal b/d 80,000Bad debts exp. 200Bal. c/d 77,800 80,000 80,000Allowance for BD & DD a/cBad debts expenses a/c Debtors’ a/c

22. Operation Expenses :4,090Bad debtsCurrent Asset 77,800Debtors73,910 ( 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 80,000Bad debts written off RM 800Allowance For BD & DD (1/1/07) RM 1,650Ainun 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. CrDr 800Allowance for BD & DD 800 Debtors(being a bad debts written off) 58Allowance for BD & DD 58 Bad debts over provision (Being a bad debt over provision)Journal Entry:

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

26. Other Income:58Bad debts over provisionCurrent Asset 79,200Debtors78,408 ( 792) (-) Allowance for BD & DDPresentation in Income Statement:Income StatementPresentation in Balance Sheet:Balance sheet as at….

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

28. Journal Entry:CrDr2,000Bank2,000 Ali a/c(being a cash received for customers bad debt) 2,000Ali a/c 2,000 Bad debt recoverable(being a bad debts recoverable)OR 2,000 Bank 2,000 Bad debts recoverable(Being a bad debt recoverable)