USA: +1-585-535-1023

UK: +44-208-133-5697

AUS: +61-280-07-5697

PROVISION FOR BAD AND DOUBTFUL DEBTS (ADJUSTMENT)

It has been the experience of businessmen that certain amount out of the entire amount of debtors will definitely prove to be bad. Amount may remain irrecoverable due to the dishonesty or unsound financial position of the debtors. In such circumstance, it is advisable to firms that they should make certain provisions out of the profit and loss account of the current year, so that the next year may not suffer the loss of bad debts relating to the current year. It is possible that current year’s debtors may prove to be bad in the next year. Decision regarding maintenance for provisions of bad and doubtful debts is taken at the end of year, so it is an item from adjustment.

For making provision for probable bad and doubtful debts and following journal entry will be passed:

Profit and Loss A/c                                         Dr.

To Provision for bad and doubtful debts

(Being maintenance of provision for bad and doubtful debts)

Provision for bad and doubtful debts account will be shown at the liabilities side, as it shows a credit balance. It may also be deducted from sundry debtors at the assets side of Balance sheet. It will also be shown at the debit side of profit and loss account.