TOPIC 6:

ACCOUNTING FOR ASSET

- DEBTORS

1.

Current Asset : Debtors

Definition

A debtor is a person who has an obligation to

pay debt to a business resulting from the
activities of buying stocks

2 types of debtors:

i. Trade Debtors- debtors from sales of stock

ii. Debtors from sales of assets.

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.

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.

1.

Current Asset : Debtors

How to measure the collection of
debtors account?
This can be done using the ageing
report.

Debtors Credit Total Current 30

60
>60
Limit Debt Period days days days
Ali
5,000 3,000 1,000 1,000 1,000
Ahmed

6000

4,000 2,500

Abu

4000

3,000 1,500

1,500
1,000 500

Refer to the ageing schedule, most probably Abu

cannot settle his debt.

Accounting for Bad Debt

Expense
Allowance method
Direct write-off method.

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.

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. Prudence
The journal entry to record bad debts
expenses: Dr
Bad Debt Expenses
Cr

Allowance for Doubtful Debts

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

Journal Entry:
Dr
Bad Debt Expenses

Cr

2,200

Debtors

2,200

(being a bad debt written off)

Income Statement

2200

Bad Debt Expenses

2200

(posting to Income Statement)

Debtors a/c
Bal b/d

80,000
80,000

Bad debts expenses

Bad debts exp. 2,200

Bal. c/d
77,800
80,000

Debtors

2,200

Inc. Statement .
2,200

2,200
2,200

Presentation in Income Statement:

Income Statement for the year
ended
Expenses :
Operation
Bad debts

2,200

Presentation in Balance Sheet:

Balance Sheet as at .
Current Asset
Debtors
(-) Allow for d/d

77,800
(
0) 77,800

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

Journal Entry:
Dr
Bad Debt Expenses

Cr

2,400

Allowance for BD & DD

2,400

(being an allowance for d/d for the year)

Allowance for BD & DD a/c

Bal c/d

All d/dBad
2,400debts
IS
2,400

2,400

Bad debts exp.

expenses
2,400 a/c
2,400

2,400

Presentation in Income Statement:

Income Statement
Operation Expenses :
Bad debts

2,400

Presentation in Balance Sheet:

Balance Sheet as at.
Current Asset
Debtors
(-) Allow. for d/d

80,000
( 2,400) 77,600

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

Journal Entry:
Dr
Allowance for BD & DD

Cr

2,200

Debtors

2,200

(being a bad debt written off)

Bad debts expenses
Allowance for BD & DD
(being a decrease in allowance for
doubtful debt)

1,256
1,256

Allowance for BD & DD a/c

Debtors

2,200

Balance b/d

2,500

Balance c/d

1,556

Bad debts expenses

1,256

3,756

3,756

Bad debts expenses a/c

All. For BD
Income Stat.
DD
1,256

Bal b/d

80,000

1,256

All for BD &DD 2,200

Debtor
a/c

Bal. c/d

80,000

77,800

80,000

Presentation in Income Statement:

Income Statement
Operation Expenses :
Bad debts

1,256

Presentation in Balance Sheet:

Balance sheet as at
Current Asset
Debtors
(-) All for BD &
DD

77,800
( 1,556) 76,244

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

Journal Entry:

Allowance for doubtful debt

Bad Debt Expenses
Debtors
(being a bad debts written off)
Bad debts expenses
Allowance for doubtful debt
(Being an increased in the Allowance
for BD & DD a/c)

Dr
2,000
200

Cr

2,200

3,890
3,890

Allowance for BD & DD a/c

Debtors

2,000

Balance b/d

2,000

Balance c/d

3,890

Bad debts expenses

3,890

5,890

Debtors

Bad debts
expenses
a/c
200 Income
Stat.
4,090

All for BD & DD

3,890
4,090

Bal b/d

5,890

80,000 All for BD & DD

Bad debts exp.
Bal. c/d
80,000

Debtors a/c

4,090

2,000
200
77,800
80,000

Presentation in Income Statement:

Income Statement
Operation Expenses :
Bad debts

4,090

Presentation in Balance Sheet:

Balance sheet as at
Current Asset
Debtors
(-) All for BD &
DD

77,800
( 3,890) 73,910

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

Journal Entry:
Dr
Allowance for BD & DD

Cr

800

Debtors

800

(being a bad debts written off)

Allowance for BD & DD
Bad debts over provision
(Being a bad debt over provision)

58
58

Allowance for BD & DD

Debtors
a/c
Bad debt over prov.
Balance c/d

800

Balance b/d

1,650

58
792
1,650
1,650

Bad debts over

Income Stat.
provision
a/c58 All for BD & DD
Bal b/d

80,000 All for BD & DD

Bal. c/d
80,000

58

800
79,200
80,000

Debtors a/c

Presentation in Income Statement:

Income Statement
Other Income:
Bad debts over provision

58

Presentation in Balance Sheet:

Balance sheet as at.
Current Asset
Debtors
(-) Allowance for
BD & DD

79,200
( 792) 78,408

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

 Journal Entry:
Bank
Ali a/c
(being a cash received for customers bad
debt)

Dr
2,000

Cr
2,000

Ali a/c
Bad debt recoverable
(being a bad debts recoverable)
OR

2,000

Bank
Bad debts recoverable
(Being a bad debt recoverable)

2,000

2,000

2,000