Calculate the total amount of debtors

Oct 13, 2025 by windailys.com 67 views

As an accountant, it's essential to understand the concept of debtors and P.D.D. (Provisions for Doubtful Debts) in accountancy. Debtors refer to the amount of money owed to a business by its customers, while P.D.D. is a provision made to account for debts that may not be recoverable. In this article, we will discuss the concept of debtors and P.D.D. and how they are calculated.

What are Debtors?

Debtors are the amount of money owed to a business by its customers. It is a current asset on the balance sheet and represents the amount of money that a business expects to receive from its customers in the near future. Debtors can be classified into different types, including:

Trade debtors: These are the amounts owed to a business by its customers for goods or services sold.
Other debtors: These include amounts owed to a business by its customers for other reasons, such as loans or advances.

What is P.D.D.?

P.D.D. (Provisions for Doubtful Debts) is a provision made to account for debts that may not be recoverable. It is a contra-asset account that is deducted from debtors to arrive at the net amount of debtors. P.D.D. is calculated as a percentage of debtors, and the percentage is based on the business's historical experience of bad debts.

Calculating Debtors and P.D.D.

To calculate debtors and P.D.D., you need to follow these steps:

Calculate the total amount of debtors: This includes the total amount of money owed to a business by its customers.
Calculate the P.D.D. percentage: This is based on the business's historical experience of bad debts.
Calculate the P.D.D. amount: This is calculated by multiplying the total amount of debtors by the P.D.D. percentage.
Subtract the P.D.D. amount from the total amount of debtors: This will give you the net amount of debtors.

Example Calculation

Let's use the example given in the problem statement:

Debtors 28,000 Less: P.D.D. 2,000 26000

In this example, the total amount of debtors is 28,000. The P.D.D. percentage is 7.14% (2,000 / 28,000). The P.D.D. amount is 2,000. To calculate the net amount of debtors, we subtract the P.D.D. amount from the total amount of debtors:

28,000 - 2,000 = 26,000

Importance of Debtors and P.D.D.

Debtors and P.D.D. are important accounts in accountancy because they help businesses to:

Manage their cash flow: By knowing the amount of debtors, businesses can manage their cash flow and make informed decisions about their finances.
Assess their credit risk: By calculating the P.D.D. percentage, businesses can assess their credit risk and make informed decisions about extending credit to their customers.
Make informed decisions: By understanding the concept of debtors and P.D.D., businesses can make informed decisions about their finances and operations.

Conclusion

In conclusion, debtors and P.D.D. are important accounts in accountancy that help businesses to manage their cash flow, assess their credit risk, and make informed decisions. By understanding the concept of debtors and P.D.D., businesses can make informed decisions about their finances and operations.

Common Mistakes to Avoid

When calculating debtors and P.D.D., businesses should avoid the following common mistakes:

Not calculating the P.D.D. percentage: This can result in an incorrect calculation of the P.D.D. amount.
Not subtracting the P.D.D. amount from the total amount of debtors: This can result in an incorrect calculation of the net amount of debtors.
Not considering the business's historical experience of bad debts: This can result in an incorrect calculation of the P.D.D. percentage.

Best Practices

To calculate debtors and P.D.D. correctly, businesses should follow these best practices:

Calculate the P.D.D. percentage based on the business's historical experience of bad debts: This will ensure that the P.D.D. amount is calculated correctly.
Subtract the P.D.D. amount from the total amount of debtors: This will ensure that the net amount of debtors is calculated correctly.
Consider the business's credit risk: This will ensure that the business is making informed decisions about extending credit to its customers.

Conclusion

In our previous article, we discussed the concept of debtors and P.D.D. (Provisions for Doubtful Debts) in accountancy. In this article, we will answer some frequently asked questions about debtors and P.D.D. to help you better understand these important accounts.

Q: What is the difference between debtors and P.D.D.?

A: Debtors are the amount of money owed to a business by its customers, while P.D.D. is a provision made to account for debts that may not be recoverable. P.D.D. is a contra-asset account that is deducted from debtors to arrive at the net amount of debtors.

Q: How is the P.D.D. percentage calculated?

A: The P.D.D. percentage is calculated based on the business's historical experience of bad debts. This percentage is then applied to the total amount of debtors to calculate the P.D.D. amount.

Q: What is the purpose of P.D.D.?

A: The purpose of P.D.D. is to account for debts that may not be recoverable. By making a provision for doubtful debts, businesses can ensure that they are not overestimating their debtors and that they are making informed decisions about their finances.

Q: How is the net amount of debtors calculated?

A: The net amount of debtors is calculated by subtracting the P.D.D. amount from the total amount of debtors.

Q: What is the importance of debtors and P.D.D. in accountancy?

A: Debtors and P.D.D. are important accounts in accountancy because they help businesses to manage their cash flow, assess their credit risk, and make informed decisions about their finances.

Q: What are some common mistakes to avoid when calculating debtors and P.D.D.?

A: Some common mistakes to avoid when calculating debtors and P.D.D. include:

Not calculating the P.D.D. percentage
Not subtracting the P.D.D. amount from the total amount of debtors
Not considering the business's historical experience of bad debts

Q: What are some best practices for calculating debtors and P.D.D.?

A: Some best practices for calculating debtors and P.D.D. include:

Calculating the P.D.D. percentage based on the business's historical experience of bad debts
Subtracting the P.D.D. amount from the total amount of debtors
Considering the business's credit risk

Q: How can debtors and P.D.D. help businesses make informed decisions?

A: Debtors and P.D.D. can help businesses make informed decisions by providing them with accurate information about their debtors and credit risk. This information can be used to make informed decisions about extending credit to customers, managing cash flow, and making investments.

Q: What are some scenarios where debtors and P.D.D. are particularly important?

A: Some scenarios where debtors and P.D.D. are particularly important include:

When a business is experiencing financial difficulties and needs to manage its cash flow
When a business is considering extending credit to new customers
When a business is making investments and needs to assess its credit risk

Q: How can businesses ensure that they are calculating debtors and P.D.D. correctly?

A: Businesses can ensure that they are calculating debtors and P.D.D. correctly by:

Following best practices for calculating debtors and P.D.D.
Considering the business's historical experience of bad debts
Regularly reviewing and updating their debtors and P.D.D. calculations

Conclusion

In conclusion, debtors and P.D.D. are important accounts in accountancy that help businesses to manage their cash flow, assess their credit risk, and make informed decisions about their finances. By understanding the concept of debtors and P.D.D. and following best practices for calculating them, businesses can ensure that they are making informed decisions about their finances and operations.