11/03/2024

IRRECOVERABLE
DEBTS
Paperroute.bn
 a receivable that is now
irrecoverable,
there is ‘no hope’ of receiving
payment from the debtors,
INTRODUCTION also known as bad debts or
doubtful debts.
TO IRRECOVERABLE REASONS FOR IRRECOVERABLE
DEBTS DEBTS
Debtors‘ poor finance
management
Debtors‘ inability/willingness
Creditors‘ unability to collect
Disputes regarding price,
quality, etc.
 the amount is written out of the
debtor’s account in the sales ledger
and written off as a charge against
profits.

INTRODUCTION
TO IRRECOVERABLE
DEBTS
 the amount is written out of the
debtor’s account in the sales ledger
and written off as a charge against
profits.

INTRODUCTION
TO IRRECOVERABLE
DEBTS
 the amount is written out of the
debtor’s account in the sales ledger
and written off as a charge against
profits.

INTRODUCTION
TO IRRECOVERABLE
DEBTS
 However, in some occassion, the
debtors may able to pay off their
debts partially or fully, in the near
future (either by bank or cash).

INTRODUCTION So, this is seen as an income/receivable.

TO IRRECOVERABLE
DEBTS
 EXAMPLE 1
Ahmad owed ABC Limited $1000. On 30 September 2020, he
left the country and could not pay the accrued value.

General Journal
Bad Debt $1000
Ahmad $1000
(Bad debt $1000 being written off).
 EXAMPLE 2
Lily owed XYZ Company $4050. At the end of the year, she
went bankrupt and paid a cheque of $450 in full. The
remaining balance was written off as a bad debt.
Working: $4050 - $450 = 3600
General Journal
Bad Debt $3600
Lily $3600
(Bad debt $3600 being written off).
 TASK 1
Prepare the journal entries to write off the bad debts:
1. A debt of $650 owed by Lee Xu.
2. Mary, the debtor, had left the country and have an outstanding
balance of $300.
3. A debt of $500 from Abu was recovered by cash.
4. Ali went bankrupt and could only paid 2% of his debt $320. The
remaining balance was written as a bad debt.
1) General Journal
Bad Debt $650
Lee Xu $650
(Bad debt $650 being written off).

2) General Journal
Bad Debt $300
Mary $300
(Bad debt $300 being written off).
3) General Journal
Cash $500
Bad Debt $500
(Bad debt $500 being written off).

4) General Journal
Bad Debt $313.60
Ali $313.60
(Bad debt $313.60 being written off).
 MOST COMPANIES MAY NOT BE
CONFIDENT IF THE DEBTS WOULD
BE RECOVERABLE.

PROVISION
It is an estimate of the possible liability that
may arise rather than that of a certain
nature. This complies with the prudence
OF DOUBTFUL concept.

DEBTS Provision of doubtful debts would be

charged to the profit and loss account:
Increase in P.D.D = expenses
Decrease in P.D.D = income
 PROVISION
OF DOUBTFUL
DEBTS
 EXAMPLE 3
Nemo Ltd’s debtors owed $39500 on 31 December 2022. On
30 June, Luigi turned bankrupt and had a balance of $660.
Nemo Ltd decided to create a provision for doubtful debts at
2% of the remaining debtors at 31 December.
Working:
1. 39500 - 660 = 38840
2. 38840 x 2% = $776.80
 EXAMPLE 3
P.D.D Account
$
transfer to Income 766.80
Statement

General Journal
Income Statement $766.80
P.D.D $766.80
(P.D.D valued at $766.80).
 EXAMPLE 4
On 31 October 2023, the amount of debtors owed is $40500.
Leo Sdn Bhd decided to create a provision for doubtful debts
at 3%
On 1 November 2022, the balance of the provision for doubtful
debts was $1500.
Working: 40500 x 3% = $1215
 EXAMPLE 4
P.D.D Account
$
balance b/d 1500
transfer to Income 1215
Statement
General Journal
Income Statement $1215
P.D.D $1215
(P.D.D valued at $1215).
 TASK 2
1. A business has a provision for doubtful debts of $200 at the start
of the year. At the end of the year, its debtors amounted to
$5000 and the provision is to made at 5% of debtors. Prepare the
provision of doubtful debts account.
2. Sonic Company had an opening balance of $6030 for provision of
doubtful debts. At the end of financial year, the provision of
doubtful debts amounted to $5500. Prepare the journal entry to
record the provision of doubtful debts.
3. Yupi Snacks’ debtors owed $35000. At the following year, two of
their debtors passed away and owed $670 each. The provision is
valued at 3% of the remaining debtors. Prepare the provision of
doubtful debts account and its journal entry.
1) P.D.D Account
$
balance c/d 450 balance b/d 200
transfer to Income 250
Statement
450 450

2) P.D.D Account
$ General Journal
transfer to I. 530 balance b/d 6030
Statement P.D.D $530
balance c/d 5500 Transfer to Income Statement $530
6030 6030 (P.D.D valued at $530).
3) 2 Debtors - 2 x 670 = $1340
(35000 - 1340) x 3% = $1009.80
P.D.D Account
$
transfer to Income 1009.80
Statement

1009.80 1009.80
General Journal
Transfer to Income Statement $1009.80
P.D.D $1009.80
(P.D.D valued at $1009.80).
 ALHAMDULILLAH...

THE END OF THE

SESSION
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