Question

1. The following information is taken from the accounting records of Sayan Company on March 31, 2017:

Trade Receivables: Rs 4,074,000 (Debit Balance) Allowances for Credit Losses: Rs 65,660 (Credit Balance)

The ageing analysis of the Trade Receivables at March 31 along with Lifetime Expected Credit Loss Rate (%) are given below:

Age Category	Amount (Rs)	Credit Loss Rate (%)
Not yet due	1,927,800	3
1-30 days past due	776,300	6
31-60 days past due	612,500	10
61-90 days past due	455,700	15
91-120 days past due	194,600	25
Over 120 days past due	107,100	50
Total	4,074,000

1. Calculate the amount of allowance for credit losses at March 31, 2017.
2. Prepare the general journal entry to record the bad debt expense for the year.
3. Post the journal entry to the Allowance for Credit Loss account.

Answer 1

Journal entry for bad debt is bad debt debited to allowance for credit losses credited.

The reason for the same is that bad debt is a loss for the company and hence it is debited.

allowance for credit losses = 612500 x 10% + 455700 x 15% + 194600 x 25% + 107100 x 50%

allowance for credit losses = 61250 + 68355 + 48650 + 53550 = 231805

instead if bal c/d we can also use account receivable as the balancing figure.

This is because the allowance amount is used to reduce the account receivable.

But a more general practice is to use bal c/d.