Moston Trading has the following trade receivables position: 31 December 2020 31 December 2021 Trade receivables 111,500 154,100 Allowance for doubtful debts 2% 3% For the year ended 31 December 2021 one of the customers who owed Moston Trading £4,100, which is included in the trade receivables balance, has been declared bankrupt and no monies will be received from that customer. The figure that would appear in the income statement for the year ended 31 December 2021 in respect of bad and doubtful debts is: a) £4,100 b) £4,500 c) £2,230 d) £6,370
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Moston Trading has the following trade receivables position:
31 December 2020 31 December 2021
Trade receivables 111,500 154,100
Allowance for doubtful debts 2% 3%
For the year ended 31 December 2021 one of the customers who owed Moston Trading £4,100, which is included in the trade receivables balance, has been declared bankrupt and no monies will be received from that customer.
The figure that would appear in the income statement for the year ended 31 December 2021 in respect of bad and doubtful debts is:
a) £4,100
b) £4,500
c) £2,230
d) £6,370
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