Charlotte maintains a provision for doubtful debts at 2 1/2% of her trade receivables at the end of each financial year.

a. Explain the meaning of each of the following terms:

i. Irrecoverable debt

ii. Provision for doubtful debts

b. Explain how Charlotte is observing the accounting principle of prudence by maintaining a provision for doubtful debts.

c. Name one other accounting principle Charlotte is observing by maintaining a provision for doubtful debts.

d. Suggest two ways in which Charlotte may reduce the possibility of irrecoverable debts.

At the end of her financial year on 31 July 20–3 Charlotte provided the following information:

The provision for doubtful debts should be maintained at 2 1/2% of the trade receivables.

e. Prepare the provision for doubtful debts account for the year ended 31 July 20–3. Balance the account and bring down the balance on 1 August 20–3.

f. Prepare relevant extracts from the income statement for the year ended 31 July 20–3.

g. Prepare a relevant extract from the statement of financial position at 31 July 20–3.

Transcribed Image Text:

On 1 August 20-2 Trade receivables 8400 During the year ended 31 July 20-3 Debts written off as irrecoverable 167 On 31 July 20-3 Trade receivables 7546 It was decided to write off a debt as irrecoverable 66