What is journal entry to create the Provision for Bad &
Doubtful debts?
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Answer Posted / k. phalguna rao
1) Bad Debts means we can expect to not receive the money
(cash/bank) from the customer (sundry Debtors) towards
goods sold to him so if the money is not received from the
customer,it is loss to the company hence losses to be
debited as Bad debits and credit to the customer (Sundry
Debtors - Current Asset) hence the current asset value
decreased
2) Provision for Bad Debts: In the business we can not
expect how much will be the bad debts because to increase
our sales and to competite with opponents we have to give
the goods / services in credit hence to protect from this
risk every compnay made a provision for Bad Debts from
Sundry Debitors
Note: if Bad Debits happen in the current financial year
first we should be adjusted from the Provision for Bad
Debts, if the bad debts crossess than provison for bad
debts then balance amount reduced from Sundry Debtors
suppose sundry debtors worth 50000.00
allow 5% on debtors for provision for bad dabts & 10% for
Bad dabts in the year end after adjust from the provision
Provision for Bad Debits A/c Dr. 2500 (50000x5% = 2500.00)
To Sundra Debtors 2500
Actual Bad Debts = 50000 x 10% = 5000.00
(BD=5000-2500(PBD) = Balance Bad Debts is 2500
Bad Debts A/c Dr. 2500
To Sundry Debtors 2500
| Is This Answer Correct ? | 66 Yes | 20 No |
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