Accounts receivable that will remain noncollectable and will be written off are known as irrecoverable or bad debts. They are shown as an expense in trading profit and loss account i:e income statement.
Double entry:
Dr: Bad debt expense (I/S)
Cr: Debtors
When a bad debt becomes good i:e the debt is collectd its entry is:
Dr: Bank/Cash
Cr: Bad debts recovered a/c
Provision for doubtful debts:
Companies make a provision for bad debts in advance at the year end which they consider will become bad debts in future. Prudence concept also states that provision is to be made for these doubtful debts. The reason for making provision is that the amount of debtors reported in balance sheet is not overstated.
Double entry:
Dr: Bad debts (P&L)
Cr: Provision for bad debts (BS)
When the debt actually becomes bad the entry will be:
Dr: Provision for bad debts (BS)
Cr: Debtors a/c
Double entry:
Dr: Bad debt expense (I/S)
Cr: Debtors
When a bad debt becomes good i:e the debt is collectd its entry is:
Dr: Bank/Cash
Cr: Bad debts recovered a/c
Provision for doubtful debts:
Companies make a provision for bad debts in advance at the year end which they consider will become bad debts in future. Prudence concept also states that provision is to be made for these doubtful debts. The reason for making provision is that the amount of debtors reported in balance sheet is not overstated.
Double entry:
Dr: Bad debts (P&L)
Cr: Provision for bad debts (BS)
When the debt actually becomes bad the entry will be:
Dr: Provision for bad debts (BS)
Cr: Debtors a/c
please tall me full entry with example from JB, P&L, BS.
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