Bad Debts/Irrecoverable Debts
*Bad debts- When the debtors are unable to pay their debts are called bad debts.
Bad debts are considered as an expense.
Journal entries to record bad debts:
Bad Debts Dr
Income Statement Cr
Ledger entries to record bad debts:
Bad Debt
Debtors
xxx
Income
Statement
xxx
*Bad Debts Recovered- It is an amount which is paid by a debtor who has been
declared as irrecoverable in a previous accounting period.
Ledger entries to record bad debts recovered:
Income Statement
Bad Debt Recovered A/C
xxx
Cash/Bank
xxx
*Provision for doubtful debts- It is an estimation of the percentage of the debts in
the anticipation of future bad debts.
Trade Receivables are not overestimated by providing provision for bad or
doubtful debt based upon the nature, size or age of debtors.
To record or create provision for doubtful debts the general journal is used.
To increase or create provision for doubtful debt:
Income Statement Dr
Provision for doubtful debt Cr
To decrease or create provision for doubtful debt:
Provision for doubtful debt Dr
Income Statement Cr
Ledger entries to record provision for doubtful debts:
Provision for doubtful debt A/C
Income Statement xxx
(Decreased amount)
Balance C/D
XXX
XXX
Balance
B/D
xxx
Income Statement XXX
Formula:
1) New Provision for doubtful debt= Debtors x %
2) To increase or decrease provision= New provision – Old Provision
XXX