The statement of financial position as at 31 May 2010 of Forest Traders Limited included an allowance for doubtful debts of £2,300. The company’s accounts for the year ended 31 May 2011 are now being prepared. The company’s policy now is to relate the allowance for doubtful debts to the age of debts outstanding. The debts outstanding at 31 May 2011 and the required allowances 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 2011. Required: Prepare the following accounts for the year ended 31 May 2011 in the books of Forest Traders Limited to record the above transactions:

(a) Allowance for doubtful debts;

(b) Provision for discounts to be allowed on debtors. (Association of Accounting Technicians)

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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 24,000 10,000 8,000 3,000 Allowance for doubtful debts 61245 %