1
The balance sheet as at 31 May 2007 of Forest Traders Limited included a provision for
doubtful debts of £2,300. The company’s accounts for the year ended 31 May 2008 are now being
prepared. The company’s policy now is to relate the provision for doubtful debts to the age of
debts outstanding. The debts outstanding at 31 May 2008 and the required provisions for doubtful
debts are as follows:
Customers are allowed a cash discount of 21/2% for settlement of debts within one month. It is now
proposed to make a provision for discounts to be allowed in the company’s accounts for the year
ended 31 May 2008.
Required:
Prepare the following accounts for the year ended 31 May 2008 in the books of Forest Traders
Limited to record the above transactions:
(a) Provision for doubtful debts;
(b) Provision for discounts to be allowed on debtors.
(Association of Accounting Technicians)