Question

4. Briefly discuss the amending of receipts entered into manual accounts receivable system

5. Why is it important to verify bad and doubtful debt status through liaison with debtors?

6. Explain the importance of completing the reporting procedures and required documentation for bad and doubtful debts

Answer 1

Answer :

4.

One of the most important steps in the accounts receivable process is to quickly enter payments received from your customers in order to recognize your current cash position. The Accounts Receivable system provides the flexibility you need to enter and maintain various types of receipts.

Manual receipts processing consists of:

• Updating invoices for payment

• Working with invoice match receipts

• Working with other types of receipts

• Approving and posting receipts

• Working with alternate methods of application

• Revising receipts

• Printing receipt information

When you work with receipts processing, be aware the action code and search type security may affect your ability to inquire upon, add, or change customer information. You must have the appropriate combination of action code/search type security to work with customer information.

5.

A charge on the value of fixed assets of a firm, depreciation usually entails writing down the cost of a fixed asset. This is done in lieu of the matching concept of accountancy. There are two main methods of charging depreciation, which is the straight-line method and the written down value method.

Bad debts are those items of charge on the profits of the company that indicate the sums of money that could not be recovered from a debtor, during the year. In order to record the number of bad debts correctly, such sum is charged to the profit and loss account and deducted from the value of debtors for that year, so that the amount represents money that is actually expected to accrue from the debtors.

The journal entry passed to record the event is as follows:

Bad Debt Exp —————Dr

To Receivable Account —————-Cr

Provision for Doubtful Debts

The provision for doubtful debts is an estimated amount of bad debts that are likely to arise from the accounts receivable that have been given but not yet collected from the debtors. It is similar to the allowance for doubtful accounts.

Such provision is provided for, under accrual basis accounting, so that an expense is usually recognized for probable bad debts as soon as invoices are issued to customers, instead of waiting several months to find out exactly which invoices turned out to be stale.

Thus, the net impact of the provision for doubtful debts is to accelerate the recognition of bad debts into earlier reporting periods. The journal entry passed in this case will be as follows:

Provision for bad and doubtful debts A/c …. Dr

To Debtors A/c ………. Cr.

Bad Debt is a debt which is not collectible and is worthless to the Creditor. It is usually a product of the debtor which has gone for bankruptcy. Bad Debts can also occur when the collection cost is more than the amount of the debt. As soon as the debt is bad, the business should be allowed to write off as an expense in its income tax return.

• Bad Debts
• Bad Debts of Discontinued Business
• Bad Debts Recovered
• Provision for Bad and Doubtful Debts
• Treatment as per Accounting Standard