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Provision for Doubtful Debts

This is the provision created to cover the loss of possible bad debts by means of a predetermined percentage of net debtors. Net debtors = Debtors – Further bad debts given in adjustment.

 

The following journal entry is passed:
 

Date

Particulars

L.F.

Debit (₹)

Credit (₹)

 

Profit and Loss A/c                Dr.

 

 

 

    To Provision for doubtful debts A/c

 

Illustration 4

 

Following are the extracts from the Trial Balance of a firm, as at 31st March, 2014.

 

Name of Account

Debit ( ₹ )

Credit ( ₹ )

Sundry debtors

1,02,500

 

Bad debts

1,500

 


After preparing the Trial Balance, it is learnt that Mr. A, a debtor, has become insolvent and nothing could be recovered from him and, therefore, the entire amount of ₹ 2,500 due from him was irrecoverable. Create 10% provision for doubtful debts.

 

Pass the necessary journal entries and show the relevant accounts (including final accounts).
 

Journal Entries
 






Illustration 5 [When provision for doubtful debts does not appear in the Trial Balance]

 

Following are the extracts of a Trial Balance as at 31-3-2014:
 

Particulars

Debit ( ₹ )

Credit ( ₹ )

Debtors

1,03,000

 

Bad Debts

1,000


Required:
 Show how these items will appear in the final accounts in each of the following alternative cases:

  1. If no other information is given
  2. Further bad debts amounted to ₹ 3,000
  3. Increase in bad debts by ₹ 3,000
  4. Sundry debtors include an amount of ₹ 3,000 due from a customer who has become insolvent
  5. Bad debts increased to ₹ 3,000
  6. Make a provision for doubtful debts @ 10% on debtors
  7. Further bad debts amounted to ₹ 3,000. Make a provision for doubtful debts @ 10% of debtors
  8. Bad debts increased to ₹ 3,000. Make a provision for doubtful debts @ 10% on debtors
  9. Debtors include Y for a dishonoured bill of ₹ 400. Half the amount of Y’s bill is irrecoverable.

     
    Also create a provision @ 5% on debtors

Solution:

 





Case (c)
 Same solution as given in Case (b).
 

Case (d) Same solution as given in Case (b).
 

Case (e)



 








Illustration 6

 

Following are the extracts of a trial balance as on 31st March 2014:
 

Name of Account

Debit ( ₹ )

Credit ( ₹ )

Debtors

1,03,000

 

Bad Debts

1,000

 

Provision for Doubtful Debts

 

7,500


Required:
 Show how these items will appear in the final accounts in each of the following alternative cases:

  1. If provision for doubtful debt is no longer required
  2. Further bad debts amounted to ₹ 3,000 and provision for doubtful debts is no longer required
  3. Further bad debts amount to ₹ 7,000 and provision for doubtful debts is no longer required
  4. Increase bad debts by ₹ 3,000 and provision for doubtful debts is no longer required
  5. Bad debts increased to ₹ 8,000 and provision for doubtful debts is no longer required
  6. Increase the bad debts provision by ₹ 500
  7. Increase the bad debts provision to ₹ 8,000
  8. Make a provision for doubtful debts @ 5% on debtors
  9. Further bad debts amounted to ₹ 3,000. Maintain a provision for doubtful debts @ 5% on debtors
  10. Further bad debts amounted to ₹ 3,000. Maintain a provision for doubtful debts @ 2%
  11. Bad debts increased to ₹ 3,000. Bad debts provision to be increased by ₹ 3,000

Solution:

 







Case (d)
 Same solution as in Case (b).
 

Case (e) Same solution as in Case (c).
 



Case (g)
 Same solution as in Case (f).
 












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