28 August 2009
i want to know the accounting treatment of prvision for bad debts and bad debts? We have 5 to six debtors that are unpaid from a year now I want to close the account but not 100% so I can pass the entry example below
bad bebt a/c......dr (under indirect expenses) provision for bad debta/c (under what group should the provision of badbebts made)
28 August 2009
Provision for bad debts is a provision to be made against a unrecoverable debt, that means you are suspecting that this amount will not be collected. If the debt is finally not in collectable in nature then you have to write it off from your books.In this time, you are sure that this will not be collected any more. Please note that Provision is not an allowable expenditure in Income tax Act whereas bad debts is an allowable expenditure. If you are decided to make provision against a particular debtor, please pass this entry, Debit : Baddebts a/c(Indirect expenditure) Credit:Provision for bad debts a/c (Provisions-Current liability)
After writing off: Debit: Provision for Bad debts a/c Credit:ABC & Co.
If you are directly writing off bad debts with out provision: Debit : Baddebts a/c Credit: sundry debtors a/c.
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