Bad Debt VS Provision of Doubtful Debt

Student



What is the difference between Bad Debt and Provision for Doubtful Debt? Please explain with entries... Thanks in advance..

 
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Manager



Bad debts are those which are hopeless and are written off from the books.

Bad Debts Dr

Sundry Drs Cr

Provision is done for cases which are overdue but still can be persued for collection though difficult.

 
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www.aubsp.com



Accounts receivable that is unlikely to be paid and is treated as loss. A firm may use one of the two methods in writing off such losses against its sales revenue:

  1. by deducting the uncollectible amounts from revenue in the accounting period they are deemed uncollectible ,

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or

2. by deducting an estimated amount from revenue in each accounting period and adjusting any excess or shortfall in the following accounting period . The ratio of bad debt losses and the open account (credit) sales is an indicator of the quality of a firmundefineds collectibles, and the efficiency of its credit monitoring efforts. Also called uncollectible account.

 
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Student



A debt that is not collectible and therefore worthless to the creditor. This occurs after all attempts are made to collect on the debt. Bad debt is usually a product of the debtor going into bankruptcy or where the additional cost of pursuing the debt is more than the amount the creditor could collect. This debt, once considered to be bad, will be written off by the company as an expense

 

 

The provision for bad debts might refer to the balance sheet account also known as the Allowance for Bad Debts, Allowance for Doubtful Accounts, or Allowance for Uncollectible Accounts. In this case Provision for Bad Debts is a contra asset account (an asset account with a credit balance). It is used along with the account Accounts Receivable in order to report the net realizable value of the accounts receivable.

Provision for Bad Debts might also be an the income statement account also known as Bad Debt Expense or Uncollectible Account Expense. In this situation, the Provision for Bad Debts reports the credit losses that pertain to the period shown on the income statement

 
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Article



Hi,

  Basicly Debtors are classified as three type as

GOOD DEBTORS      BAD DEBTORS    DOUBTFULL DEBTORS

BAD dr are those from whom there is no hope to recover the due so entry will be

bad debtd             dr

                To Debtors

Doubt Full Debts are those from  whome due money can be recoverOR it can be doubtfull to recover so we need to make a Provisior for this.Entry will be as

P & L a/c         dr

              To Provision For Doubt Full Debts

It Is helpfull to us that we should make Provision For Both type of debtors as per BASIC ACCOUNTIN ASSUMPTION of CONSERVATION , & PRUDENCE


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Student



If provision was made for doubtful debt in the previous year by passing

P&L a/c Dr      

    To Provision for doubtful debts.

 

If bad debt is confirmed in the next year, wat entry should be passed in the books?

 
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Chartered Accountant



In simple words, when you're sure about the non-recovery, its a bad debt.

When you expect a that you'll not recover, you create a provision.

 
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Student



when we're sure about the non-recovery, its a bad debt, i.e,. deduct from debtors or receivables.

when we're in doubt of recovery, we create a provision i.e. P&L a/c DR   Provisions CR

when we made provision, we didn't deduct anything from Debtors. After provision for doubtful debt created if bad debt is confirmed, what entry should be passed?

 
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Learner



Originally posted by : Santhu

If provision was made for doubtful debt in the previous year by passing

P&L a/c Dr      

    To Provision for doubtful debts.

 

If bad debt is confirmed in the next year, wat entry should be passed in the books?

 

When bad debts are confirmed, we should deduct the bad debts from debtors.

 

Bad Debts a/c               Dr.

            To Debtors a/c

 

We no longer need to provide for the bad debts above, so the following entry is passed:

 

Provision for Doubtful Debts a/c  Dr.

                  To Bad Debts a/c


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bad debt is an known current liability where as provision for bad debt is for unknown liability

 
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