Question 4.4: The Partex company began trading in 2008, and all sales are ...
The Partex company began trading in 2008, and all sales are made to customers on credit. The company is in a sector that suffers from a high level of bad debts, and a provision for doubtful debts of 4% of outstanding accounts receivable is made at each year end.
Information relating to 2008, 2009 and 2010 is as follows:
| Year to 31 December | |||
| 2008 | 2009 | 2010 | |
| Outstanding accounts receivable at 31 December* | £88,000 | £110,000 | £94,000 |
| Bad debts to be written off during year | £4,000 | £5,000 | £4,000 |
*before bad debts have been written off
You are required to state the amount that will appear:
(i) in the balance sheet for trade receivables, and
(ii) in the income statement for bad debts.
| 2008 | 2009 | 2010 | |
| £ | £ | £ | |
| (i) Balance sheet as at 31 December – accounts receivable | |||
| Accounts receivable including debts to be written-off | 88,000 | 110,000 | 94,000 |
| Write-off of debts to profit and loss account (1) | \underline{(4,000)} | \underline{(5,000)} | \underline{(4,000)} |
| 84,000 | 105,000 | 90,000 | |
| \left\{ \begin{matrix} – \hspace{30 pt} 3,360 \hspace{30 pt} 4,200\\ \underline{ (3,360) } \hspace{30 pt} \underline{(4,200) } \hspace{30 pt} \underline{(3,600)} \end{matrix} \right. | |||
| Doubtful provision at 4% of accounts receivable (2) | |||
| Trade receivables at end of year | \underline{80,640} | \underline{104,160} | \underline{90,600} |
| (ii) Profit and loss account year ended 31 December – bad and doubtful debts | |||
| Bad debts written-off (1) | 4,000 | 5,000 | 5,000 |
| \left\{ \begin{matrix} – \hspace{30 pt} (3,360) \hspace{30 pt} (4,200)\\ \underline{3,360} \hspace{30 pt} \underline{4,200} \hspace{30 pt} \underline{3,600} \end{matrix} \right. | |||
| Doubtful debt provision at 4% of accounts receivable (2) | |||
| Bad and doubtful debts charge for year | \underline{7,360} | \underline{5,840} | \underline{3,400} |
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