(A) Explain why a provision may be made for doubtful debts.
(B) Explain the procedure to be followed when a customer whose debt has been written-off as bad subsequently pays the amount originally owing.
(C) On 1 January 2014 D. Watson had debtors of £25,000 on which he had made an allowance for doubtful debts of 3%.
During 2014,
(i) A. Stewart, who owed D. Watson £1,200, was declared bankrupt and a settlement of 25p in the £ was made, the balance being treated as a bad debt.
(ii) Other bad debts written-off during the year amounted to £2,300.
On 31 December 2014 total accounts receivable amounted to £24,300 butthis requires to be adjusted as follows:
(a) J. Smith, a debtor owing £600, was known to be unable to pay and this amount was to be written-off.
(b) A cheque for £200 from S. Mclntosh was returned from the bank unpaid. D. Watson maintained his allowance for doubtful debts at 3% of accounts receivable.