Bad Debts :

Debts which cannot be recovered are called bad debts. It is a loss for the business.

Example: The trial balance as on 31st March 2004 shows, Sundry debtors Rs.52,500. Adjustment: Write off Rs. 2,500 as bad debts.

Adjusting Entry

Date	Particulars	L.F	Debit Rs.	Credit Rs.
2004
31-Mar	Bad debts A/c                                                                                                        Dr		2,500
	To Sundry debtors A/c			2,500
	(Bad debts written off)

 

To transfer bad debts to Profit and Loss account the following transfer entry is required.

Transfer Entry

Date	Particulars	L.F	Debit Rs.	Credit Rs.
2004
3 1-Mar	Profit & Loss A/c                                                                             Dr		2,500
	To Bad debts A/c			2,500
	(Bad debts transferred to Profit & Loss A/c)

 

Bad 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.

Profit & Loss Account
for the year ending 31st March, 2004
Dr.                                                                                                                                                                                                                                                Cr.

Particulars	Rs.	Particulars	Rs.
To Bad debts A/c	2,500

 

Balance Sheet as on 31st March, 2004

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
			Sundry debtors	52,500
			Less: Bad debts written off	__2500
					50,000

 

Note:

Bad Debts Account
Dr.                                                                                                                                                                                                                                             Cr.

Particulars	Rs.	Particulars	Rs.
To Sundry debtors A/c	2,500	By Profit & Loss A/c	2,500
	2,500		2,500