the following information wads extracted ffrom the book of a business man :debtors as on 31/12/1987 $25000 bad debts during 1987 $1000.provision for doubtful debts is to be maintained at 5%. a provision for discount is also at 2%. you are required to calculate the amount set aside in respect of provision for doubtful debts and provision for discounts on debtors respectively
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Debtors for the year 1987 is - 25000
Bad debts - 1000
Doubtful debts - 5% ie; 25000 -(25000*5/100 =1250)= 23750
Pro. for Discount on Debtors 2% - (22750*2/100) = 22295
therefore
In balance sheet (Assest Side)
Debtors - 25000
Less: bad-debts - 1000
= 24000
less: pro.for doubtful debts 1250
= 22750
Less: Pro. for Discount on debts - 455
22295
In P & L Account(debit Side)
Bad debts - 1000
Add: Pro for Bad debts - 1250
Add: Pro for Discount on Debts- 455
= 2705
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