The Sage Course Companion on Financial Accounting is an accessible introduction to the subject that will help readers to master key concepts and enhance their thinking skills in line with course requirements. It provides support on how to revise for exams and prepare for and write assessed pieces.

Bad and Doubtful Debts

Bad and Doubtful Debts

Bad and doubtful debts

When you are preparing the financial statements for a business, you will frequently find reference to bad and doubtful debts. Examiners often assess this topic with a practical question or occasionally by a short written question.

It is important to ensure you understand the difference between bad debts and doubtful debts.

Bad Debts

Bad debts are incurred when it is reasonably certain that a debtor to a business will not be paying. For example the debtor's business may itself have collapsed leaving no funds in which to pay its obligations. You should treat bad debts in the same manner as any other expense.

For example, if the trial balance shows a debit entry for bad debts of £700 then treat this £700 ...

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