Bad Debts Account
Bad debt refers to loans or outstanding balances owed that are no longer deemed recoverable and must be written off. This expense is a cost of doing business with customers on credit, as there is always some default risk inherent with extending credit. Bad debts is also a loss for firm.
It will be counted in DR.
Journal Voucher
1. A firm became insolvent and 40 paise in a rupee was received from his estate by chq that was deposited into bank.[loan was 8000]
| Bad debts Ac | DR | 4800 |
|---|---|---|
| Bank Ac | DR | 3200 (40*80 because 1 paisa=80 INR) |
| Company Ac | CR | 8000 |
2. Received 20000 from Mr. X which were written off bad debts in previous year
| Cash Ac | DR | 20000 |
|---|---|---|
| Bad Debts recovered Ac | CR | 20000 |
3. Unreal corp was declared insolvent this year, and an amount of 70,000 is to be shown as bad debts in the books of ABC Corp. Show accounting for bad debts in this case.
| Bad Debts | DR | 70000 |
|---|---|---|
| Unreal Crop | CR | 70000 |
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