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How do we treat Bad debts... how to create
provision/reserve for bad debts? show an example journal...
for creating provision and then writting off debtors
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Answer Posted / safayat
Bad debt is an operating expense. Creating reserve for bad debt:
For example: Total debtors $20000. Provide reserve for 7%.
Now creating reserve...
Bad debt account....... Dr. 1400
Reserve for bad debt account...... Cr. 1400
($20000*7%) This $1400 will be deducted from debtors & will
be shown on Profit & Loss account as an expense.
Now let us write off debtors for $500.
The journal will be:
Reserve for bad debt..... Dr. 500
Debtors account..... Cr. 500.
If the amount is recovered later then the entry will be:
Cash/Bank account..... Dr.
Reserve for bad debt account.... Cr.
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