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bad debts vs provision for doubtful debts


pls tell me what is the difference between bad debts and provsion for doubtful debts

i know that when we hav no chances of receving money from debtor then this entyr is passed

bad debts dr

to provsion for dd cr

 

and when we have to make provsion then this entry shud be pass

 

p/l

to provsion for dd cr


but i have seen many times  this entry     PROVISION FOR DD DR

                                                                           TO BAD DEBTS CR

what does this entry mean ....

pls explain me with an example..also pls use easy language ..pls dont use accounting language like written off and all..pls

 
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CA CMA DISA(ICAI) B.COM

WHEN IT IS CONFERMED THAT OUR DEBT IS GOOD THEN THERE IS NO REQUIREMENT OF BAD-DEBT PROVISION SO THAT'S WHY ENTRY IS TO BE REVERSED...............
 

 
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what exctly we do in provision against NPA pls explain with example

 
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1.wHEN we know we'll get our money,i.e.Debt is Good,we reverse the Provision.

Originally posted by : Tehsinkhan pathan

WHEN IT IS CONFERMED THAT OUR DEBT IS GOOD THEN THERE IS NO REQUIREMENT OF BAD-DEBT PROVISION SO THAT'S WHY ENTRY IS TO BE REVERSED...............
 

original when u make the provision,u pass:

        BAD DEBTS  DR

                                TO PROVISION FOR DD CR

hence Reversal is exactly the opposite:

PROVISION FOR DD DR

        TO BAD DEBTS CR

 

 

                         

                                 

 
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NPA IS A NON PRODUCTIVE ACCOUNT , BASICALLY  WHY  PROVISION IS REQUIRED FOR THE BAD DEBTS , WITH THE PAST EXPIREANCE , PRUDENCE  THE ENTITY  CAN ESTIMATE THE BAD DEBTS WHICH NORMALLY TOOK PLACE IN BUSINESS , NOW  THE REQUIREMENT IS THAT , IF U MAKE THE PROVISON FOR BAD DEBTS IT REFLECT THE TRUE PICTURE OF U R BUSINESS , IF NOT THE PROFIT IS INFLATED , IF  U DNT MAKE PROVISION AND THEN  U CAME TO KNOW THERE ARE  BAD DEBTS  THEN IT SHOWS HIGHER PROFIT FOR THE  PREVIOUS YEAR AND THE PROFIT IN THE NEXT YEAR GET REDUCE AS U CHARGE THE BAD DEBTS IN THAT PARTICUALR FINANCIAL YEAR

 

ITS  IN THE BEST INTREST OF BUSINESS AND ACCEPTED PRINCIPAL OF ACCOUNTING , SO THERE IS A NEED TO CREAT PROVISON FOR BAD DEBTS

 
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THANKS YOU SIRG FOR REPLY, AGAIN I HAVE SOME QUERY WE GOT A NOTICE FROM IT UNDER US 202.CAN U TELL WHAT EXACTLY IS THIS.

 
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bad debts (exp) 

          pro for bad debts

when debts arrives

            pro for bad debts

                          debtors

it s right or wrong,, pls comment

 
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Accounts / Administration

When the trial balance shows a balance without deducting bad debt, journal entries will be:

Bad Debt Account Dr.

To Debtors

 

We have to deduct this bad debt from provision of bad debt, entry will be:

Provision for bad debt Dr.

To Bad Debt

 

To make current year provision:

P&L A/c Dr.

To Provision for Bad Debt.

 

Provision for bad and doubt ful account is created according to matching priciples. when the sales of this year is not collectable in subsequent year, to avoid affecting figures of that year, an estimate amount is deducted in current year based on Companies past experience or some other logic. For making provision, will be based on balance in provision account as below:

 

If the Current year Debtors a/c balance were Rs. 10,000, current yeaer bad debt is Rs 200, firm has to create 3% provion for bad debt and balance in previous year provision account balance is Rs 350, then P&L should be debited with Rs 150, calculated as below:

Current year provision (3% of Rs 10,000):    Rs 300

Add: Bad debt written off                                   Rs 200

                                                                              Rs 500 

Less: Previous year balance                          Rs 350

                                                                             Rs 150      

                                                                                             


Total thanks : 1 times

 
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Bad debt is a recorded loss while a provision for doubful debts is a provision created upon estimating the loss..

Simply first has the element of certainity to a greater extent and the other is comparitively uncertain...being treated under AS-5 while the prior doesnt come so..

 
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