The balance on an entity's sales ledger control account is £36,000. It is company policy to maintain a provision for bad debts of 10% of trade receivable balances in addition to any specific amounts that are noted. You are told that two credit customers (Alfie who has a balance owing of £1,500 and Wilfred who has a balance owing of £2,500) are experiencing financial difficulties due to the recession.
Given this information what will the balance on the provision for doubtful debts be at the end of the year?

Question

Quizplus · Accepted Answer

The provision for doubtful debts is 10% of trade receivable balances, which is £36,000 x 10% = £3,600. In addition, there are two specific amounts that are noted, which are £1,500 and £2,500. Therefore, the total provision for doubtful debts is £3,600 + £1,500 + £2,500 = £7,600.

The Balance on an Entity's Sales Ledger Control Account Is