Ulrich prepares his accounts to 31 July each year. At 31 July 20X1 his debtors list totals
Question:
Ulrich prepares his accounts to 31 July each year. At 31 July 20X1 his debtors list totals £397 700. Included in the list is a debt of £17 000 owing by Gayle Associates. Gayle Associates has recently ceased to trade and Ulrich has been told by Gayle's administrator that there is little likelihood of him ever recovering the £17 000 owing to him.
There is a recession in the general economy and Ulrich is concerned that some of his other debtors could run into difficulties. He decides to make a general provision for doubtful debts of 1 % of debtors whose balances have been outstanding for more than three months at 31 July 20X1 (excluding the £17 000 owed by Gayle). He has never previously made a provision against debtors.
An analysis of Ulrich's debtors at 31 July 20X1 shows the following:
£
Outstanding for one month or less Outstanding for between one month and three months Outstanding for over three months Gayle Associates 169 930 143 370 67 400 17 000 397 700 How will debtors be presented in Ulrich's balance sheet at 31 July 20X1? What is the effect of bad and doubtful debts on Ulrich's profit for the year?
Step by Step Answer:
Business Accounting And Finance For Non Specialists
ISBN: 9781861528728
1st Edition
Authors: Catherine Gowthorpe