BAD DEBTS & PROVISION FOR BAD DEBTS

There are two types of sales in the company; goods sold in cash and goods sold on credit.

If goods are sold on credit, bad debts and provision is crated.

When business provides credit facility, in this situation bad debts arise.

Provision for bad debts is deducted after bad debts.

Discount on debtor is deducted after bad debts and provision for bad debts.

These are deducted from debtors (bills receivable, account receivable, book debts).

Both bad debts and provision for bad debts are debited in profit and loss account.

Bad debts and Provision for Bad Debts

Journal Entry

In the book of …………

Keep in Mind (KIM)

PROBLEM: 19

XYZ Traders has following extracted transactions:

·          Bad debts written off Rs 15,000.

·          Bad debts written off on account receivable Rs 10,000.

·          Provision for bad debts is to be maintained Rs 6,000.

·          Bad debts written off on receivable Rs 5,000 and provision for bad debts 5% (bills receivable Rs 45,000)

·          Previously written off bad debts now recovered Rs 2,000.

·          Mr Ramesh, a debtor of Rs 25,000, became insolvent and received 35 paisa in a rupee.

·          M/s BG Suppliers, a debtor of Rs 60,000, became insolvent and recovered only 45% by cheque.

Required: Journal entries

SOLUTION:

Given and working note:

35 paisa in a rupee means 35% coz one rupee is 100 paisa

Cash received       = 25,000 @ 35%         = Rs 8,750*

Bad debts             = 25,000 @ 65%         = Rs 16,250

Cash received       = 60,000 @ 45%         = Rs 27,000^#

Bad debts             = 60,000 @ 55%         = Rs 33,000

Journal Entries

In the book of XYZ Traders

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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

Basic Problem: 19       BAD DEBTS AND PROVISION FOR BAD DEBTS

OP Traders has following extracted transactions:

Bad debts written off Rs 10,000 on debtors.

Bad debts written off on bills receivable Rs 7,000.

Provision for bad debts is to be maintained 5% on book debts of Rs 50,000.

Bad debts written off on receivable Rs 10,000 and provision for bad debts 10% (bills receivable Rs 50,000).

Bad debts Rs 2,000; provision for bad debts 2% and discount allowed on debtor 1% (debtor is Rs 30,000).

Required: Journal entries

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