Name: Mazen Abdu Ali Alyamani 9-E 10233

20/4/2022

Topic: Irrecoverable and doubtful debts

Q1: What are irrecoverable debts?

Ans: Amounts owed to a business that it believes will never be paid.

If a business makes sales on a credit basis then it sells goods or

services to customers, agreeing that payment will be delayed for a
period of time, usually 30 days.

Q2: Give one reason how the situation of

irrecoverable debts occurs?

Ans: Bad debts could arise for a number of reasons such

as customer going bankrupt, trade dispute or fraud. Every time an

entity realizes that it unlikely to recover its debt from a receivable,
it must 'write off' the bad debt from its books.

Q3: State 5 tips to protect your business in future

from bad debts?

Ans: 1. Put checks and balances in place.

2. Make upfront payments your policy.

3. Set your payment terms – and stick to them.

4. Offer incentives for early payers.

Name: Mazen Abdu Ali Alyamani 9-E 10233
20/4/2022

5. Up to date systems and processes.

Q4: In what order are adjustments made at year-

end?
Ans: Year-end adjustments are journal entries made to various
general ledger accounts at the end of the fiscal year, to create a
set of books that is in compliance with the applicable accounting
framework. A number of year-end adjustments may be required,
depending on how diligently the books have been maintained on a
monthly basis. The number of these adjustments that are needed
has a direct impact on the time required to close the books. An
efficient company controller will probably try to minimize the
number of year-end adjustments by avoiding making any entries
pertaining to immaterial business transactions.

Q5: What is the difference between bad debt and

doubtful debts?
Ans: Thus, a bad debt is a specifically-identified account receivable
that will not be paid and so should be written off at once, while a
doubtful debt is one that may become a bad debt in the future and
for which it may be necessary to create an allowance for doubtful
accounts.

Q6: Name two accounting principles that is applied

by maintaining a provision for doubtful debts?
 Name: Mazen Abdu Ali Alyamani 9-E 10233
20/4/2022

Ans: The prudence principle is followed in adopting policy of

making provision for doubtful debts @5% on debtors. Prudence
principle or conservatism principle means all the expenses or possible
losses should be recorded in advance, but incomes should not be
recorded in advance.

Q7: The majority of businesses will sell to their

customers on credit and state a definite time within
which they must pay: Give 2 advantages and
disadvantages of doing so?
Ans: A business owner must consider the effects on his company
before venturing into the potential minefield of taking credit risks
with customers.
 Advantage: Meet the Competition. ...
 Advantage: Increase in Sales. ...
 Advantage: Better Customer Loyalty. ...
 Disadvantage: Negative Impact on Cash Flow.
 Disadvantage: Need to Fund Accounts Receivable
 Disadvantage: Taking a Credit Risk with
Customers