Principles of accounting and double entry bookkeeping: Practice Questions

Which of the following describes the correct double entry for recording the recovery of a debt that was previously written off as irrecoverable?

On 1 January 2022, a business had a balance on its allowance for irrecoverable debts account of \( £1,400 \). On 31 December 2022, trade receivables totaled \( £38,000 \), which included a debt of \( £2,000 \) that was confirmed as irrecoverable and needed to be written off. The business maintains an allowance for irrecoverable debts of \( 5\% \) on the remaining trade receivables.

What is the net adjustment to the statement of profit or loss for the allowance for irrecoverable debts for the year ended 31 December 2022?

A business provides for depreciation on its non-current assets at the end of each financial year. Which accounting concept states that expenses incurred in an accounting period should be matched against the revenues earned in the same period?

A business purchased small office tools such as staplers and wastepaper bins for \( \$50 \). Although these items will last for several years, the accountant recorded them as revenue expenditure rather than non-current assets. Which accounting concept justifies this treatment?

Which accounting concept or convention is being applied when a business includes a note in its financial statements regarding a legal claim against the company, even though the outcome is uncertain and no payment has been made?

A business maintains its accounting records using an integrated ICT system. State two ways in which the use of ICT improves the accuracy of the trial balance compared to a manual accounting system.

Explain, with reference to the accruals concept, the accounting treatment of a \( \$500 \) electricity bill received on 5 January 2024 for the period 1 October 2023 to 31 December 2023.

A company received a \( \$2,000 \) order on 28 December 2022. The goods were dispatched on 3 January 2023. If the company mistakenly recorded this as revenue for the year ended 31 December 2022, state the accounting concept violated and the effect on the profit for that year.

On 31 December 2023, the trade receivables of Zenith Supplies totaled \( £80,000 \). This total was categorized using an aging schedule as follows:
- 0–30 days: \( £45,000 \) (No allowance required)
- 31–60 days: \( £20,000 \) (\( 1\% \) allowance required)
- 61–90 days: \( £10,000 \) (\( 5\% \) allowance required)
- Over 90 days: \( £5,000 \) (\( 20\% \) allowance required)

Before calculating the allowance for the year, the bookkeeper discovered that a specific debt of \( £1,000 \), currently included in the "Over 90 days" category, is irrecoverable and must be written off.

The balance on the Allowance for Irrecoverable Debts account on 1 January 2023 was \( £1,200 \).

(a) Calculate the total amount of the allowance for irrecoverable debts required at 31 December 2023.
(b) Prepare the Allowance for Irrecoverable Debts account for the year ended 31 December 2023, showing the transfer to the Statement of Profit or Loss.
(c) Explain the application of the prudence concept in maintaining an allowance for irrecoverable debts.