No. 2(a) (i): Preparation of journal entry to record the writing off of bad debts:
No. 2(a) (ii): Journal entry for creation of Provision for doubtful debt as at 31 Dec, 2010:
No. 2(a) (iii): Drawing up the Provision for Doubtful Debt account for the two years, 1st January 2010 to 31st December 2011, showing the balances at the end of each year:
Calculation of balance of provision for doubtful debt as at 31 Dec, 2011:
$25,000 x 10% = $2,500.
Therefore provision needs to be reduced by $332, (that is; $2,832-$2,500 = $332). To reduce the provision the following double entry needs to be carried out:
Debit – Provision for doubtful debt a/c - $332
Credit – Income Statement - $332
To reduce the provision for doubtful debt account to $2,500.
No. 2(b): Adjustments to financial statements:
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The author holds a Bsc (Hons) Degree in Applied Accounting from Oxford Brookes University, England and enjoys a successful career as an Accounting Supervisor and a private tutor.