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What is bad debt ? how does it effects on Balance sheet and
profit and loss account?
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Answer Posted / dj
Debts which cannot be recovered or become irrecoverable are
called Bad Debts. It is a loss for the business.For
example,if Sundry debtors on 31st March, 2007 are 55,200,
bad debts on that date are Rs.200,Entry passed is:
Bad Debts a/c Dr. 200 -
To Sundry Debtors a/c - 200
The two-fold effect of bad debts will be that bad debts will be:
(1) Shown on the debit side of Profit & Loss Account, and
(2) Shown on the asset side of the Balance Sheet by way of
deduction from Sundry Debtors.
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