bad debts entry -JE

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Divya

Divya (Querist)
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28 May 2016 journal entry of bad debts

Murtaza I Bhagat

Murtaza I Bhagat (Expert)
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28 May 2016 Bad debts means that money which we could not acquire from our debtors. We may give the goods or money on credit to our debtors. Same debtor or debtors has to give us the money of his taken debt. But when will not give the debt, it will be the loss of our business, so, we have to pass the entry for bad debts like
the entry of any other business loss. All losses account will be debited and any asset which will decrease, will be credited. In case of bad debt following journal entry will be passed.
1. Journal Entry for Bad Debts Loss
For showing this journal entry, it is very necessary that a debt must be uncollectible. We have done all the efforts but we did not collect the debt. After failure of final notice to the debtor, we will convert our debt in bad debt.
Bad Debt Account Debit
Particular Debtor Account Credit
Example : Sham did not pay us our Rs. 5000 debt and Ram did not pay us our Rs. 10000 debt up to end of the financial year. This receivable amount has converted in to bad debt loss by following entry.
Bad Debts Account Debit 15000
Sham Account Credit 5000
Ram Account Credit 10000
2. Journal Entry for Bad Debts Written Off
Written off means, we are closing bad debt account by transferring bad debt amount to the debit side of our profit and loss account . When we will show bad debts in the debit side of profit and loss account, bad debts account will show same amount in its credit side. So, both side of bad debt account will be equal. No balance will carry forward.
Profit and Loss Account Debit
Bad Debts Account Credit
Example : Sham did not pay us our Rs. 5000 debt and Ram did not pay us our Rs. 10000 debt up to end of the financial year. This receivable amount has converted in to bad debt loss and then written off by transferring it in profit and loss account
Profit and Loss Account Debit 15000
Bad Debts Account Credit 15000
3. Journal Entry for Bad Debts Recovered
When bad debts are recovered from debtor after the closing of our financial year. We will show it as our income. Like other incomes, bad debts recovered will also be our income. So, this account will be credited. We will debit that asset account which will increase. By earning this income, our bank account will increase because we received same money from our debtor. At that time, following entry will be passed.
Bank Account Debit
Bad Debts Recovered Account Credit
Example : Sham did not pay us our Rs. 5000 debt and Ram did not pay us our Rs. 10000 debt up to end of the financial year 2011. In the financial year 2012, we received Rs. 6000 from Ram and 2000 from Sham on 7th June 2012
7 June 2012
Bank Account Debit 8000
Bad Debt Recovered Account Credit 8000
4. Journal Entry for Bad Debts Recovered which has been transferred to profit and loss account
Bad Debts Recovered Debit
Profit and Loss Account Credit
Example : Sham did not pay us our Rs. 5000 debt and Ram did not pay us our Rs. 10000 debt up to end of the financial year 2011. In the financial year 2012, we received Rs. 6000 from Ram and 2000 from Sham on 7th June 2012. At the end of 2012, we transferred it to profit and loss account.
31st Dec. 2012
Bad Debts Recovered Account Debit 8000
Profit and Loss Account Credit 8000

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