This paper therefore should be of particular interest to our registered students preparing for both the manual and computerized tests of impotence together with serving as a refresher for those of you as members in practice that need to deal with the practical application of this interesting concept. If you are waiting for the results Of the October examinations, I do so hope that your journey was successful.

DRP Philip E Dunn Editor Head of Education Trainee Certified Bookkeepers need to develop competence in the procedure for writing off a bad debt and also dealing with the creation of a provision for doubtful debts together with its review on an annual basis. As an examiner find this an area that often causes difficulty, however if you aster the principles any examination question on the topic will be easily understood. This short paper will I am sure be of Interest not only to our student audience but as a refresher to those of you in practice that may be required to deal with this concept.

In most businesses debtor balances represent an important element of working capital. Accounting principles dictate that the supply of goods or services is accounted for as sales, at the point at which the buyer has a legal obligation to pay for them. Total debtors represent the value of credit sales for which payment has yet to be received. An obligation and certainly of payment differ, as payment for a variety of reasons is not always forthcoming. The customer may have become insolvent or is experiencing cash flow problems.

Accounting concepts that underpin the fundamental principles including that of ‘prudence’ apply here. Prudence is a concept covered in the former standard SAPP, Disclosure of Accounting Policies and is still prominent in the standard FRR 18, Accounting Policies. It is clear that having taken credit for the sale, accountants should write back as soon as identified any ‘bad debts’ and make provision for those unlikely to e paid. The analysis of aged debtors’ lists and scrutiny of those outstanding beyond a reasonable time will help in identifying likely doubtful debts.

Research suggests that average debtor days in the UK are around 67, and there is still much room for improvement. The difference between the procedures for dealing with specific bad debts and a provision for doubtful debts includes: A bad debt arises when there is ‘no hope’ of receiving payment from the customer. The amount is written out of the debtors account in the sales ledger and written off as a charge against profits. Whereas a provision for doubtful debts, also complying with the principles of FRR 18, recognizes the extent of the risk being taken by entering into credit sale transactions.

The provision is an estimate of the possible liability that may arise rather than that of a certain nature. The initial provision is a charge against the profit and loss account but is then carried forward to a subsequent period. The debtors figure in the balance sheet is adjusted to ‘net of the provision’. This gives ‘a more true and fair view’ of the debtors at that point in time. Any increase or decrease in the provision in a subsequent period is debited or credited to the profit and loss account. The case study that follows illustrate these procedures.

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