PREPARE FINANCIAL REPORTS

Name: Tanim Khan

Disclaimer. Version 1
1.0
 TAFE NSW acknowledges Aboriginal
and Torres Strait Islander Peoples as the
Traditional Custodians of the Land,
Rivers and Sea. We acknowledge and
pay our respects to Elders; past, present
and emerging of all Nations.

North Head, Sydney Region 

Traditional lands of the Ga-ring-gai and Gam-a-rai-gal (Cammeraygal) peoples 2
STEPS

• Additional Bad Debts to be Written off

• Allowance for Doubtful debts to be adjusted as percentage of accounts
receivable
• Extract of General Journal

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 EXAMPLE
Australia Ltd: As on 01/07/15 Allowance for Doubtful Debts was $1,100
Balances as t 30 June 2016
• Accounts Receivable $34,980
• Bad Debts $1,243

An account receivable J Dee was written off as an additional bad debt for $847 ($770 +
$77 GST)
It was estimated that doubtful would increase to 6% of the Accounts Receivable and
accordingly should be provided/processed as a Balance Day adjustment.

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A) ADDITIONAL BAD DEBT TO BE WRITTEN OFF
The Journal Entry would be:

Date Detail Debit Credit

30/6/16 Bad Debts Expense 770
GST Collected/ Payable 77

Accounts Receivable Control 847

-J Dee 847

Additional Bad Debt Written

Off

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B) ALLOWANCE FOR DOUBTFUL DEBTS TO BE INCREASED TO 6% OF ACCOUNTS RECEIVABLE
Step 1 Australia Ltd Accounts Receivable (AR) as on 30/06/16= $34,980
Step 2 The additional Bad Debts Written off are then subtracted from the Accounts Receivable to get the final AR
Balance of $34,133 ($34,980- $847)
Step 3 The Allowance is then to be increased to 6% of AR which is 6% of $34,133 = $2,048
Step 4 The additional Allowance required would be $948 which is $2,048 less the existing Allowance of $1,100
Step 5 Finally the Journal entry would be:
Date Details Debit Credit
30/6/16 Doubtful Debt Expense $948

Allowance for Doubtful Debts $948

Allowance for Doubtful Debts adjusted

to 6% of Accounts Receivable

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C) CLOSING JOURNAL FOR THIS TRANSACTION AT THE END OF ACCOUNTING YEAR
The Journal entry would be:

Date Details Debit Credit

30/6/16 Profit & Loss $2,961

Bad debts expense $2,013

(1,243 + 770)
Doubtful Debts Expense $948

Accounts closed to P&L

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ACCOUNTING HELP DESK

Monday – Thursday – Friday 8.30am – 5.00pm
Tuesdays and Wednesdays 8.30am – 8.00pm
Phone: 02 7920 1051

Email: tafedigital.a
ccounting@tafensw.edu.au

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THANK YOU