Forum

• # 76747
• Mon 21 Nov 2011 05:22 PM

Hi everyone,

I have  a query I need a little help with please...on the subject of bad debts place on the balance sheet.

On the home study course I have just finished it showed bad debts as a liability on the balance sheet.
On the mock level 2 manual exam I have done today the bad debt showed as a deduction from the debtors figure on the assets side.

Whilst this doesn't make any difference at the net assets level, the different methods do make a difference to the assets or liabilities totals.

Is this to do with whether the bad debt is 'real' or a provision?  That's the only possible explanatation I can think of for the difference in the methodology.

Any help or advice greatly appreciated as I have the real exam next week.

•  
• 
  Quote
  

• # 76750
• Mon 21 Nov 2011 06:33 PM

Hi Lou,

The way I have been taught this through ICB and FIA standards are the same.

The way I have been taught and the way I understand this is; although a'provision' for bad debt is a liability, it is deducted from the Debtors total, therefore it would be shown as a minus figure in the current assets section. For example;

Balance sheet extract;

Current Assets 
Bank 1000
Debtors 1000
Prov for bad debt (100)

My theory behind this is; if a debt was to go bad, say for £100, this would be reducing your current assets (debtors) by £100.

This is my understanding, perhaps it would be a good idea to ask your training provider why they have it under the 'current liability' section, just to be safe and certain. They will most likely have an explanation for you :)


Just to clafiry, this is just a provision, so it is just a safeguard (being prudent) just in case one of your debtors turns into a bad debt.

Hope this helps

Kerry



 

• www.berrybookkeeping.co.uk
  
  My responses are based on my opinions, not necessarily facts.
• 
  Quote