How to treat the provision for bad debts which appeared on
the credit side of the P&L A/c?
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Answer Posted / krishna
This is an Income. Bad debts provision will be kept aside
from the Profits of the company.If this was not utilised in
the previous year, then this will be carried forward to
next year. In the present year if the Provision required is
lesser than the last year provision, then the difference
will be posted on the credit side of the profit and loss
account.
Ex: Last Year provision 1000
This year provision required 900
Then the Journal entries are as follows
Bad Debts A/c Dr 900
To Bad debts provision A/c 900
Effect on the P&L Account:
900 - on the Debit side of the P&L (New Provision)
1000 - on the Credit side of the P&L (Old Provision)
Net effect - 100 (P&L Credit)
Treatment in B/s
Reduce the Debtors by 900 (Deduct New Provison only as the
difference has been already taken back to P&L)
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