The balance sheet as at 31 May 20X7 of Forest Traders Limited included a provision for doubtful debts of £2,300. The company’s accounts for the year ended 31 May 20X8 are now being prepared. The company’s policy now is to relate the provision for doubtful debts to the age of debts outstanding. The debts outstanding at 31 May 20X8 and the required provisions for doubtful debts are as follows:

Customers are allowed a cash discount of 2¹/2% for settlement of debts within one month. It is now proposed to make a provision for discounts to be allowed in the company’s accounts for the year ended 31 May 20X8.

Required:

Prepare the following accounts for the year ended 31 May 20X8 in the books of Forest Traders Limited to record the above transactions:

(a) Provision for doubtful debts;

(b) Provision for discounts to be allowed on debtors.

Transcribed Image Text:

Debts outstanding Up to 1 month More than 1 month and up to 2 months More than 2 months and up to 3 months More than 3 months Amount £f 24,000 10,000 8,000 3,000 Provision for doubtful debts JOINT In % 1 2 4 5