PROVISION FOR BAD AND DOUBTFUL DEBT
CHAPTER 13: BAD DEBT & PROVISION FOR DOUBTFUL DEBT
Bad debt
A bad debt is an amount owing to a business which will not be paid by the debtor.
Bad Debt A/C ( DR )
( I ) Bad Debt written off
Debtor or Trade Receivable A/C ( CR )
Written off bad debt is an example of the application of the principle of prudence:
• Not to overstate the current assets ( Trade Receivable )
• Not to overstate the profit for the year.
At the end of accounting period,
Income Statement ( DR ) (Expense)
( II ) Close the Bad Debt A/C and
Transferred to Income Statement
Bad Debt A/C ( CR )
Bad Debt Recovered
A bad debt recovered arises when a debtor pays some, or all, of the amount owen, after the amount
was written off as a bad debt.
Cash or Bank A/C ( DR )
( I ) Bad Debt Recovered
Bad Debt recovered A/C ( CR )
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PROVISION FOR BAD AND DOUBTFUL DEBT
At the end of accounting period,
Bad Debt Recovered A/C ( DR )
( II ) Close the Bad Debt RecoveredA/C and
Transferred to Income Statement
Income Statement ( CR ) ( Income )
Provision for doubtful debt
A provision for doubtful debt is an estimate of the amount which a business will lose in a financial
year because of bad debt.
Provision for doubt debt = Debtor (after written of bad debt) x %
Income Statement ( DR )
( I ) Creation of provision for doubtful debt
Provision of doubtful debt A/C ( CR)
Income Statement ( DR )
( II ) Increase in provision for doubtful debt
Closing > Opening Provision of doubtful debt A/C (CR)
Provision of doubtful debt A/C ( DR )
( II ) Decrease in provision for doubtful debt
Closing < Opening Income Statement ( CR )
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Q.1
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Q.3
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Q.4
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Q.5
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