O-LevelAccountingAccounting procedures7707/23 · Oct/Nov 2022 · Q520 Marks

NT started in business on 1 September 2020. All sales are on credit and payment is required from customers within 25 days. On 5 May 2021, LW a trade receivable was declared bankrupt and a debt of $600 was written off as irrecoverable at that date.

(a)Prepare a journal entry to write off the amount owed by LW. A narrative is required. NT General Journal Date Details Debit $ Credit $[3]
(b)Prepare an extract from the expenses section of NT's income statement for the year ended 31 August 2021. NT Extract from income statement for the year ended 31 August 2021[2]
(c)Prepare an extract from the assets section of NT's statement of financial position at 31 August 2021. NT Extract from statement of financial position at 31 August 2021[2]
(d)Prepare the following ledger accounts for the year ended 31 August 2022. Bring down the balance on 1 September 2022, where appropriate. NT ledger accounts PB account Date Details $ Date Details $ Irrecoverable debts account Date Details $ Date Details $ Provision for doubtful debts account Date Details $ Date Details $[8]
(e)Advise NT on which option he should introduce. Justify your answer.[5]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2022). The mark or mark type is shown in brackets.

[3] NT General Journal
Date May 5 Details Irrecoverable debts Debit $ 600 (1)
Details LW Credit $ 600 (1)
Account written off as irrecoverable (1)
[2] NT Extract from income statement for the year ended 31 August 2021
Irrecoverable debts (600 + 4100) $ 4700 (1)
Provision for doubtful debts (91 500 × 5%) $ 4575 (1)
[2] NT Extract from statement of financial position at 31 August 2021
Current assets**
Trade receivables $ 91 500
Less Provision for doubtful debts 4575 (1) OF
86 925 OF **(1) For heading + OF total
[8] NT Ledger accounts
PB account
Date 2022 * Balance b/d $ 7000
Date 2022 July 17 Details Bank $ 2500 }(1)
Irrecoverable debts $ 4500 }
Totals 7000
Irrecoverable debts account
Date 2022 July 17 Details PB $ 4500 (1) OF
Aug 31 Details Trade receivables/debts written off $ 8400 (1)
Totals 12900
Date 2022 Aug 31 Details Income statement $ 12900 (1) OF
Provision for doubtful debts account
Date 2022 Aug 31 Details Balance c/d $ 5500
Totals 5500
Date 2021 Sep 1 Details Balance b/d $ 4575 (1) OF
Date 2022 Aug 31 Details Income statement $ 925 (1) OF
Totals 5500
Date 2022 Sep 1 Details Balance b/d $ 5500 (1)
[5] Option 1 - charge interest
Customers may go elsewhere/competitors may offer better terms/sales may decrease (1)
Customers may not be prepared to pay the interest (1)
May damage relationship with customers (1)
Customers may pay on time/may be encouraged to pay on time to avoid interest charges (1)
Profit/income will be increased because of interest received (1)
Increase in administration costs (1)
Accept other valid points Max (2)
Option 2 - stop supplies
Overdue balances may never be paid and have to be written off (1)
Customers may go elsewhere/ competitors may offer better terms/sales may decrease (1)
May damage relationship with customers (1)
Accept other valid points Max (2)
Recommendation (1)