Can anyone help?

System

A pretty silly question to ask but it is really bugging me.<BR><BR>Im doing a question for Financial Accounting and the note after the TB states that Bad debts are to be written off and a provision for doubtful debts of 5% is to be created. Should the 5% be worked on the amount after the bad debt is written off??<BR><BR>

System

Can anyone help?

Hi<BR><BR>You are quite correct in your assumption, that is Bad Debts have to be removed from the Sales Ledger Control Account before the provision for doubtful debts is calculated.<BR><BR>eg Sales Ledger Control Account stands at £22,000 in the TB<BR>You have a bad debt of £2,000<BR>Provision for Bad Debts to be set at 5%<BR><BR>Offset the bad debt by journal entry - Debit Bad Debts £2,000 (watch for possible VAT bad debt allowance)<BR>Credit Sales Ledger Control Account £2,000<BR><BR>Balance c/d on Sales Ledger Control Account now £20,000<BR><BR>Provision for bad debts = £20,000 x 5% = £1,000<BR><BR>Journal Debit Provision for Bad Debts in the Profit & Loss Account £1,000<BR>Credit Provision for Bad Debts in the Balance Sheet £1,000<BR><BR>Hope helps<BR><BR>Regards<BR><BR>Paul