AP1 Queries

sscors Registered Posts: 72 Epic contributor 🐘

wondering if anyone might know the answers to these questions.

1. Why does VAT on Van's purchase part exchange value go on the credit side of a VAT account?

2. A trial balance has been prepared and a suspense account has been opened with a credit balance of £4410 . You need to make some adjustments to eliminate the suspense account and other journals adjustments are required.

A credit customer has gone into liquidation owing £2500. This needs to be written off in the accounts. The management would also like an allowance for doubtful debts equal to 5% of the remaining debtors.

I understand the entries for irrec debt however not sure where to get the figures from for the allowance fopr doubtful debt?



  • Richard
    Richard Registered Posts: 373 Dedicated contributor 🦉
    If they have part exchanged the van, they will have been able to treat the disposal of the old van as a sale, and therefore, charge VAT. The credit to the VAT account would represent the sales VAT - is there also a debit to the VAT account for the purchase of the new van?

    The allowance for doubtful debts would be the balance of the debtors, less the £2,500 written off, multiplied by 5%.

    For example. if the debtors balance is £47,500, deduct £2,500 for the bad debt to leave £45,000. 5% of £45,000 is £2,250 so the journal would be Dr. Bad debt provision (P&L) and Cr. Bad debt provision (B/Sheet).

    If the balance on suspense represents part of this adjustment, it may be that the P&L accounts have been posted correctly, and you would only need to Dr Suspense and Cr Bad debt provision (B/Sheet).
  • sscors
    sscors Registered Posts: 72 Epic contributor 🐘
    Thank you:001_smile:
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