(a) What are the differences between bad debts written off and provision for bad debts?

(b) Give two reasons for creating a provision for bad debts.

(c) What is meant by bad debts recovered? How are such items entered in the profit and loss account of a business?

(d) On 1 January 20-4 there was a balance of £500 in the provision for bad debts account, and it was decided to maintain the provision at 5 per cent of the debtors’ total at each year-end.

The debtors on 31 December each year were as follows:

You are required to show the necessary entries for the years ended 31 December 20-4, 20-5 and 20-6 in:

(a) the provision for bad debts account; and

(b) the profit and loss account.

20-4 8.000 20-5 8.000 20-6 11.000