FINAL ACCOUNT - Provision for Bad and Doubtful Debts

12th BOOK KEEPING BY AJAYSANTHOSH MOURYA

 1.1.12 Provision for Bad and Doubtful Debts

Every business suffers a percentage of bad debts over and above the debts definitely known as irrecoverable and written off as Bad (Bad debts written off). If Sundry debtors figure is to be shown correctly in the Balance sheet provision for bad and doubtful debts must be adjusted.This Provision for bad and doubtful debts is generally provided at a certain percentage on Debtors, based on past experience.
While preparing final accounts, the bad debts written off given in adjustment is first deducted from the Sundry debtors then on the balance amount (Sundry debtors – Bad debt written off) provision for bad and
doubtful debts calculated.

Example: The trial balance shows on 31.3.2004, Sundry Debtors as Rs.60,000.
Adjustment: Provide 5% provision for bad & doubtful debts on Sundry debtors.

 

Provision for bad and doubtful debts will be shown
i) on the debit side of Profit and Loss Account and
ii) on the assets side of the Balance sheet by way of deduction from Sundry debtors (after Bad debts written off if any). 

Example : The Trial Balance as on 31st March 2004 shows the following:

Sundry Debtors    Rs. 81,200
Adjustment: Write off Rs.1,200 as bad debts. Create a provision for Bad and doubtful debts @ 5% on Sundry Debtors.