About Bad Debts and Bad Debts Entry

Bad Debts

Bad debts means that money which we could not acquire from our debtors. We may give the goods or money on credit to our debtors. Same debtor or debtors has to give us the money of his taken debt. But when will not give the debt, it will be the loss of our business, so, we have to pass the entry for bad debts like the entry of any other business loss. All losses account will be debited and any asset which will decrease, will be credited. In case of bad debt following journal entry will be passed.

1. Journal Entry for Bad Debts Loss

For showing this journal entry, it is very necessary that a debt must be uncollectible. We have done all the efforts but we did not collect the debt. After failure of final notice to the debtor, we will convert our debt in bad debt.

Bad Debt Account Debit

Particular Debtor Account Credit

Example : Shyam did not pay us our Rs. 5000 debt and Ram did not pay us our Rs. 10000 debt up to end of the financial year. This receivable amount has converted in to bad debt loss by following entry.

Bad Debts Account Debit 15000

Sham Account Credit 5000

Ram Account Credit 10000

2. Journal Entry for Bad Debts Recovered

When bad debts are recovered from debtor after the closing of our financial year. We will show it as our income. Like other incomes, bad debts recovered will also be our income. So, this account will be credited. We will debit that asset account which will increase. By earning this income, our bank account OR cash account will increase because we received same money from our debtor. At that time, following entry will be passed.

Bank Account / Cash Account Debit

Bad Debts Recovered Account Credit

Example : Shyam did not pay us our Rs. 5000 debt and Ram did not pay us our Rs. 10000 debt up to end of the financial year 2011. In the financial year 2012, we received Rs. 6000 from Ram and 2000 from Shyam by cheque on 7th June 2012

7 June 2012

Bank Account Debit 8000

Bad Debt Recovered Account Credit 8000

The End

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