Question

The following information is taken from the 2015 annual report to shareholders of Hughe-Pockets (HP) Co. For Fiscal 2015 For Fiscal 2014 Provision for doubtful accounts $ 27 million $ 104 million At Fiscal Year-end 2015 At Fiscal Year-end 2014 Accounts receivable, net 15,896 million 16,427 million Accounts receivable, gross 16,248 million 16,911 millionUsing a T-account for the allowance for doubtful accounts, identify the changes in the account during fiscal year 2015.

Answer 1

Answer:

   DR (Rm)                 PROVISION FOR DOUBTFUL DEBTS           CR (Rm)

                                                              balance b/d                                104

provision for bad debt

adjustment (income)            77 m

balance  c/d                          27 m

the change in the provision for doubtful debt is $77 million income.

Explanation:

The provision for bad debts adjustment can either be an income of an expense.

The provision for doubtful debts is an negative asset (liability) always set off against the account receivables (asset).

Account receivables is used to estimate the provision for bad debt by multiplying them by an estimated percent for provision for doubtful debts.