E7.8 Brian Bazaar had sold goods on credit in September 2016 for $5500 (includin
ID: 2542114 • Letter: E
Question
E7.8 Brian Bazaar had sold goods on credit in September 2016 for $5500 (including
10% GST) and in November 2016 became aware that the debtor M. Waters was
bankrupt and the creditors were unlikely to receive any amounts due. On 28 November,
the accountant for Brian Bazaar wrote the debt off against the Allowance for Bad Debts
account. Brian Bazaar uses the non-cash (accruals) basis for reporting and remitting the
GST obligations.
Required
(a) Prepare the journal entry to record the bad debt write-off.
(b) Prepare a brief memo to the general manager explaining the effect of the bad debt
write-off on the GST liabilities and the difference between reporting the GST on the
cash and non-cash (accruals) basis in regards to bad debts.
Explanation / Answer
a) the journal entry to record the bad debt write-off :
Debit Allowance for Bad Debts $5000
Debit GST adjustment $500
Credit Accounts Receivable $5500
b) Memo to the GM :
If the reported on cash basis,then a bad debt won't affect the GST. This is because the GST is only reported once the payment has been made and invoiced and received from the customer.
If the reporting is on accrual-based, then writing off a bad debt will only affect your GST if it has already been reported and paid. The adjustment in the "Customer GST return" for the GST.
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