Bad Debt Accounting Revision Questions

Bad Debt Accounting Revision Questions

1)  Which one of the following accounts records money owed to you by credit customers?

1. Purchases
2. Debtors Control
3. Creditors Control
4. Bad Debts

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2)  Which one of the following statements is correct?  Once a debt is considered as a bad debt, it needs to be:

1. Accepted
2. Accurued
3. Written-off
4. Logged

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3)  A debt is written-off.  Ignoring the VAT, which one of the following statements describes the correct accounting procedure?

1. Sales is debited and Trade Debtors is credited
2. Trade Debtors is debited and Bad Debts is credited
3. Trade Debtors is credited and Bad Debts is debited
4. Trade Creditors is debited and Bank is credited

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4)  A bad debt does not affect the Profit and Loss report because the money is never received.

1. True
2. False

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5)  To which one of the following categories does Bad Debts account belong?

1. Sales
2. Assets
3. Liabilites
4. Expenses

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6)  You write-off a debt.  The net amount is £1,200 and the VAT rate is 17.5%.  Which one of the following statements is correct?

1. The VAT account is debited with £175
2. The VAT account is credited with £175
3. The VAT account is debited with £210
4. None of the above

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7)  You write-off a bad debt.  Which one of the following statements is correct?

1. Your Profit and Loss report is affected, but the Balance Sheet is not
2. Your Balance Sheet is affected, but Profit and Loss report is not
3. Both the Balance Sheet and the Profit and Loss report are affected
4. None of the above

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8)  You write-off £100 net sales.  The VAT rate is 17.5%.  Which one of the following statements is correct?

1. The VAT account is not affected
2. VAT is debited with £17.50 and the Bad Debts is credited with £17.50
3. VAT is credited with £17.50 and the Bad Debts is debited with £17.50
4. None of the above

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9)  A bad debt affects the Balance Sheet because it is a Liability.

1. True
2. False

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10)  A customer who owes you £1000 net is going out of business, and can only pay £900 net.  You write-off the remainder as a bad debt.  Which one of the following describes the effect on the relevant accounts?

1. Debtors Control is credited with £117.50, Bad Debts is debited with £100.00 and VAT is debited with £17.50
2. Debtors Control is debited with £117.50, Bad Debts is credited with £100.00 and VAT is credited with £17.50
3. Debtors Control is credited with £100.00, Bad Debts is debited with £85.00 and VAT is debited with £15.00
4. Debtors Control is debited with £100.00, Bad Debts is credited with £85.00 and VAT is credited with £15.00

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Bad Debt Accounting Revision Answers

1)  Option (b) is correct.  Those who owe you money are your Debtors.

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2)  Option (c) is correct.  When there is no longer any chance of a payment being received for an outstanding / bad debt, this debt needs to be written-off.

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3)  Option (c) is correct.  The Sales account is not involved.  The Bank account is not involved.  The money owed by customers is recorded in the Trade Debtors account.  When the debt is written-off, this account decreases and is credited.  The Bad Debts account increases and is debited.

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4)  Option (b) is correct.  This is false.  A bad debt is an expense on the business, and therefore, affects the Profit and Loss.

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5)  Option (d) is correct.  A bad debt is considered to be an expense to the business.

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6)  Option (c) is correct.  The VAT on sales of £1,200. is £210.  You no longer owe this to the VAT office, so the VAT account is debited.

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7)  Option (c) is correct.  The bad debt is an expense, so the Profit and Loss is affected.  Trade Debtors is an asset, so an asset has been removed from the Balance Sheet.

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8)  Option (d) is correct.  The VAT involved is £17.50.  You no longer owe this, so VAT is debited.  Bad Debts has increased, so it is debited.

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9)  Option (b) is correct.  This is false.  A bad debt does affect the Balance Sheet, but it is not classified as a Liability.  It is classified as an expense.  It affects the Balance Sheet because, before it became a bad debt, it was an asset.

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10)  Option (a) is correct.  The total amount being written-off is £100.00 plus £17.50 VAT.  The customer no longer owes this, so Debtors Control is credited.  The £100 is owed to you.  This is the bad debt, so the Bad Debts account is debited.  You are no longer liable for the £17.50 VAT, so the VAT account is debited.

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