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Need help can any one explain ??

ali (Student CA CPT ) (130 Points)

21 August 2014

what kind of account is provision for bad and doubtful debts.??
in a text book it is given that it is a PERSONAL ACCOUNT (as per English Approach) and a ASSET ACCOUNT as per American Approach )

is that true ??

how is tat Asset account?? i think it is LIABILITY Account?? Explain this to me.

and also please explain this JE

Profit and loss acc DR xxx --

To provision to bad and ddr acc -- xx

If provision for bad and doubtful debts is an ASSET then y it is taken in liability side in balance sheet???

Please anyone pls explain..-

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16 Replies

Ashish Tewani (CA Final Article at V.P. Mehta & Co.) (83 Points)
Replied 21 August 2014

1. Some say Provision for Bad Debts is an Expense A/c, hence shown on debit side of P & L A/c. Others say its a Contra-Asset A/c (An Asset A/c having Cr. balance). But its not a Personal Account.

2. There is possibility that a debtor may prove bad to us. So, we will not recover any or some part of amout from him. Hence, we make a provision for it. It is nothing but a lock on funds to be used for some specific purpose. It is lockage of our own funds, so how can it be a liability? No way!

3. Locking the funds has to be done through P & L A/c, hence, that entry has to be made.

4. It is not shown on the Liability side of B/s, although it has Credit Balance. Instead it is netted off from Debtors to show the Debtors at a net value. This is just a presentation, actual debtors are not affected. They are only affected when there are actual bad debts.

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Bhaavna (Queen ) (1933 Points)
Replied 21 August 2014

provision for bad debts neither comes under nominal acount nor real acount. though its charged to p&l a/c its a personal account as its amount of los from debtor. debtor becomes aset due to debit balance and but its not real acount though its current aset, its just a personal acount. as provision is related to debtor which comes under personal acount. and there are thre accounts.,real, nominal and personal. debtors is not material debtor is a persom who owes to busines,

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Bhaavna (Queen ) (1933 Points)
Replied 21 August 2014

baddebts - nominal acc prov for bad debts - (representative) personal acc

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Bhaavna (Queen ) (1933 Points)
Replied 21 August 2014

asset itself means debit balance which giv future benefits, liabiity is simply credit balance which busines owe to some one. So no there is no chance for any aset having cr balance. as the los due to debtor thats estimated nothing but future los on past experhence s not a expense so it does not come under NOMINAL A/C or REAL A/C, Any item under LIABILITIES in BALANCE SHEET comes only under PERSONAL A/C s. All items under ASETS in BALANCE SHEET must be REAL A/C or PERSONAL A/C. P&L A/C represents NOMINAL

Ashish Tewani (CA Final Article at V.P. Mehta & Co.) (83 Points)
Replied 21 August 2014

Bhaavna Google For "Contra-Asset Account"! :)

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Bhaavna (Queen ) (1933 Points)
Replied 21 August 2014

P&L A/C represents NOMINAL OR REPRESENTATIVE. PERSONAL A/C (al provsions )

Bhaavna (Queen ) (1933 Points)
Replied 21 August 2014

may be but my books and teachers taught me. comparing al views it seems to be only personal acc. refer to AS10 for the definition of ASET :):)

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ali (Student CA CPT ) (130 Points)
Replied 22 August 2014

as u said above mam "

Any item under LIABILITIES in BALANCE SHEET comes only under PERSONAL A/C s"

then does Provision for depreciation on plant and machinery is also a personal account????

because i saw these provisions in balance sheet in liability sides..

And as u said i went through my 1st pu books and it says that balance sheet contains only personal accounts and real accounts. my question is that how provision for bad/doubtful debts A/C and provisions for depreciation on plant and machinery A/C is a personal accounts ?? pls can u explain mam ?? :)

Ashish Tewani (CA Final Article at V.P. Mehta & Co.) (83 Points)
Replied 22 August 2014

May be I'm wrong. Yes it can be a Personal Account. Yes I remember, we were taught all Provisions and Reserves are Personal A/c's but why they are so, it didn't come to my mind till now! :D

I have a better understanding now, may I can now elaborate in a clear way:

1. Why is Fixed Bank Deposit a personal A/c? Because when we deposit our money in a Bank, it becomes our Debtor, since its our money. Now here we are locking our funds in Bank, which is a third party, that's why it becomes a Personal A/c.

2. When it comes to Provisions, the situation is same, except the fact that we keep these locked funds with ourselves only and not with bank. Its like we become Debtor to ourselves only.

Bhaavna (Queen ) (1933 Points)
Replied 22 August 2014

Ali, I hope Tewari clarified wich i was about to reply the same point.

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Bhaavna (Queen ) (1933 Points)
Replied 22 August 2014

Yes al provsions are perSonal accs. al Outstanding liabilites also coms under personal acc

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ali (Student CA CPT ) (130 Points)
Replied 26 August 2014

Originally posted by : Ashish Tewani
	May be I'm wrong. Yes it can be a Personal Account. Yes I remember, we were taught all Provisions and Reserves are Personal A/c's but why they are so, it didn't come to my mind till now! :D I have a better understanding now, may I can now elaborate in a clear way: 1. Why is Fixed Bank Deposit a personal A/c? Because when we deposit our money in a Bank, it becomes our Debtor, since its our money. Now here we are locking our funds in Bank, which is a third party, that's why it becomes a Personal A/c. 2. When it comes to Provisions, the situation is same, except the fact that we keep these locked funds with ourselves only and not with bank. Its like we become Debtor to ourselves only.

sir this 2nd point can u explain me again :)

Ashish Tewani (CA Final Article at V.P. Mehta & Co.) (83 Points)
Replied 27 August 2014

1. What are Provisions?

Ans: Funds kept locked for some specific purpose under specific conditions.

2. Where are they kept?

Ans: They are with us in the form of Cash, Bank or Liquid Assets. (Mostly they are in form of Cash only)

3. Who is the owner?

Ans: We ourselves.

4. So which type of account should it be?

Ans: Personal.

Feel free to ask more, if any query remains! :)

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ali (Student CA CPT ) (130 Points)
Replied 29 August 2014

Originally posted by : Ashish Tewani
	1. What are Provisions? Ans: Funds kept locked for some specific purpose under specific conditions. 2. Where are they kept? Ans: They are with us in the form of Cash, Bank or Liquid Assets. (Mostly they are in form of Cash only) 3. Who is the owner? Ans: We ourselves. 4. So which type of account should it be? Ans: Personal. Feel free to ask more, if any query remains! :)

sir as per ur explainations can this journal entry be correct ?? (after u explained me i tried to make this journal entry is this correct?? i made this entry after going through all the explainaitions given by YoU and other respected members to my question :) ) pls tel me if iam correct and if i have understood the concept sir :)

Mr X capital A/c DR XX --

to provisions for bad debts/deprecion A/c -- XX

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