AP1 Queries

sscors

Hello

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.

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

Thankyou

Richard

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

Thank you:001_smile: