The allowance for doubtful debts account has a balance at the start of the year of $2000. At the end of the year debts of $880, including $80 GST, are to be written off and the allowance for doubtful debts is to be adjusted to 10% of the closing accounts receivable balance of $33 000 (including $3000 GST). The amount for bad and doubtful debts appearing in the income statement for the year will be:

Question

Quizplus · Accepted Answer

The bad and doubtful debts expense in the income statement is calculated by adjusting the allowance for doubtful debts to the desired ending balance and accounting for debts written off. The desired ending allowance is 10% of the accounts receivable balance excluding GST ($30,000 * 10% = $3,000). The adjustment needed is the desired ending balance ($3,000) minus the starting balance ($2,000) plus the debts written off ($800, excluding GST), totaling $1,800.

The Allowance for Doubtful Debts Account Has a Balance at the Start