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What is journal entry to create the Provision for Bad &
Doubtful debts?
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Answer Posted / premsundar
You should first recognize that a Provision is made just to hold back the profits you might otherwise distribute as a dividend Distribution of dividends de-recognizing possible losses would amount to 'repayment of capital'; a process that can be gone through only under the provisions of Sec 100 of the cos Act
The entry
Doubtful debts a/c Dr
To Provision for Bad and Doubtful debts
Year end
P&L a/c Dr
To Doubtful debts a/c
( This is a Closing entry)
In the Balance sheet, the Provision for bad and Doubtful debts a/c is shown as a deduction from Sundry debtor's a/c This satisfies the MATCHING PRINCIPLE and the concept of Prudence
When Bad Debts are actually incurred later they need to be set off against the Provision already created for the purpose
Bad debts a/c Dr---
To Sundry Debtors a/c----
Prov for Bad & Doubtful debts Dr---
To Bad debts a/c
Recognize that P&L a/cdoes not suffer a debit again
To
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