XSIQ
*
Accounting - Topics - Balance day adjustments - Bad and doubtful debts
Bad and doubtful debts
* Where a bad debt occurs in the same period as the credit sale then the
entry is:
$
$
Bad debts
200
Debtors
200
Bad debt recorded against debtors
This is all that is involved. At the end of the period the bad debt is
posted to the Profit and Loss account.
Where the bad debt occurs in a later period, when the credit sale is made
in the first period, it is anticipated that part of the funds owing on that
credit sale will not be received. The business sets up an allowance
account.
$
$
Period 1 Doubtful debts
500
Allowance for doubtful debts
500
ALLOWANCE CREATED FOR DOUBTFUL DEBTS
Period 1 Profit and Loss a/c
500
Doubtful debts
500
DOUBTFUL DEBTS POSTED TO PROFIT AND LOSS A/C
In period 2 the actual bad debt occurs. Let us suppose it is $450, then
the following transaction occurs:
$
$
Period 2 Bad debts
450
Debtors
450
BAD DEBT RECOGNISED FOR DEBTORS
Period 2 Allowance for doubtful debts
450
Bad debts
450
DOUBTFUL DEBTS POSTED TO ALLOWANCE FOR DOUBTFUL DEBTS
Period 1
Allowance for doubtful debts
500
Period 1
Profit and Loss a/c
500
Period 2
Bad debts
450
Period 1
Doubtful debts
500
Period 2
Bad debts
450
Period 2
Debtors
450
Period 2
Allowance for doubtful debts
450
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