Module 1: Balance day adjustments

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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