If it is a doubtful bad debt the provision to be made. It is helpful to the firm to face the debitor if turns into a bad debt in future, in addition to that, the liquidity position will increase.
Bad debts DR Allowance for doubtful debt CR Some accounting practioners may use provison for doubtful debts instead of allowance for doubtful debts. Example of bad debts, suppose a customer was unable to pay their debts totalling $150. This will be the journal entry for the transaction: Bad debts 150 Allowance for doubtful debts 150
The Allowance for bad debts will go the on the debit side of the Balance Sheet. If total debtors are 20000 and 5% is allowed as allowance for bad debts then 19000 will be shown as debtors and 1000 will be shown as allowance for bad debts in the debit side of the Balance Sheet. When the bad debts actually occur for e.g. if next year bad debts of 500 actually turn out, then the allowance will be reduced by Rs. 500 and the bad debts will be shown in the Dr. Side of Profit and Loss Account.
Accounts that are unlikely to be paid and are treated as loss is considered as bad debt.Provision for Bad Debts can also be the income statement accountalso known as Bad Debt Expense or Noncollectable Account Expense. In this situation, the Provision for Bad Debts reports the credit losses that refer to the period shown on the income statement.
there is a difference between doubtful and bad debts,doubtful is future happening that means a provision type it gives an intimation for the finance department of the company to create some provision for such debtors that they r going to be treated as bad debts,where as bad debts means they r being conformed as non recovery after the situations like closure of business r dissolution of the firm takes place r insolvency petition might have been taken place after proper steps regarding recovery have been taken place they will be treated as "bed debts"
The prudence concept assumes that the worst can happen and tries to account for it in the accounts. The provision for doubtful debts is an estimated percentage of debtors that are not expected to pay during the year. All the debtors may pay up during the year, meaning that the provision for doubtful debts was unnecessary, but it still lets the companies account for any possible bad debts during the year.
Debit Bad Debts Credit Provisions for Bad Debts
debit accounts receivableCredit provision for bad debts
Its not easy match it with the bad debts and the discount allowed if there are provisions made during the period that relate to the period under review.
Bad DebtNormally what companies do is they make provisions for bad debts in advance like below. Dr P&L - Bad debts xxxxxCr - Provision for Bad debts (BS) xxxxxWhen the debt actually gets bad, what they do isDr - Provision for Bad debts (BS) xxxCr - Debtors/receivable a/c xxxNote - There are 2 types of provisions.1. General - where individual attention is not given to debtors. (ex 10% of debtor balance)2. Specific - Individually identify who are bad (Debtor A, B & C)If you have a general provision you can set-off the bad debt against that account.If you have a specific provision, you have to see whether he has been provided for. If that's the case you just debit that a/c. If that debtor is not individually provided for, you have to write it off against the P&L account.Again, normally companies have to give the breakup of the provisions accounts in their financials. They have to show,1. What is the actual bad debt2. What are the general or specific provisions made during the year.Because these two can come in one line.
The ISBN of Bad Debts is 0732258162.
Bad Debts was created in 1996.
Bad Debts has 297 pages.
[Debit] Bad debts [credit] accounts receivable
bad debts a/c Dr To sundry debtors a/c
Bad debts DR Allowance for doubtful debt CR Some accounting practioners may use provison for doubtful debts instead of allowance for doubtful debts. Example of bad debts, suppose a customer was unable to pay their debts totalling $150. This will be the journal entry for the transaction: Bad debts 150 Allowance for doubtful debts 150
Debit cashCredit bad debts
The Allowance for bad debts will go the on the debit side of the Balance Sheet. If total debtors are 20000 and 5% is allowed as allowance for bad debts then 19000 will be shown as debtors and 1000 will be shown as allowance for bad debts in the debit side of the Balance Sheet. When the bad debts actually occur for e.g. if next year bad debts of 500 actually turn out, then the allowance will be reduced by Rs. 500 and the bad debts will be shown in the Dr. Side of Profit and Loss Account.