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
Bad debts account Provision for bad debts account To Debtors account (Being- bad debts and provision for bad debts written off) |
Dr Dr
|
Amount of bad debts Amount of provision for bad debts Sundry debtors
|
Increase in loss Increase in loss Decrease in assets |
Journal Entry
In the book of …………
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Bad debts account Provision for bad debts account To Debtors (A/R, B/R, Book debts) account (Being- bad debts and provision for bad debts written off) |
Dr Dr |
|
xxxx xxxx
|
xxxx |
Keep in Mind (KIM)
Bad debts and provision for bad debts is charged on debtors. If debtors are not given, it is charged on bills receivable, account receivable and book debts. First bad debt is deducted then provision for bad debts is calculated. |
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
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Bad debts account To Debtors account (Being- bad debts written off on debtors) |
Dr
|
|
15,000
|
15,000
|
|
Bad debts account To Account receivable (Being- bad debts written off on account receivable) |
Dr
|
|
10,000
|
10,000
|
|
Provision for bad debts account To Debtors (Being- provision bad debts written off on debtors) |
Dr
|
|
6,000
|
6,000
|
|
Bad debts account Provision for bad debts account To Bills receivable [Being- bad debts and provision bad debts written off PBD (45,000 – 5,000) @ 5% = Rs 2,000] |
Dr Dr
|
|
5,000 2,000
|
7,000
|
|
Cash account To Bad debts recovered A/c (Being- previously written off bad debts now recovered |
Dr
|
|
2,000 |
2,000 |
|
Cash account Bad debts account To Mr Ramesh’s account (Being- debtor became insolvent and received 35 paisa in a rupee) |
Dr Dr
|
|
8,750* 16,250 |
25,000 |
|
Bank account Bad debts account To M/s BG Suppliers (Being- debtor became insolvent and received 45% by cheque) |
Dr Dr
|
|
27,000# 33,000 |
60,000 |
###########
PROBLEMS AND ANSWERS |
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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