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bad debts vs provision for doubtful debts

lakshay (ipcc) (581 Points)

11 February 2011

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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8 Replies

Tehsinkhan Pathan (CA CMA DISA(ICAI) B.COM) (3956 Points)
Replied 11 February 2011

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...............

madhura (director) (32 Points)
Replied 15 February 2011

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

Ankita Benegal (CA Final) (66 Points)
Replied 17 February 2011

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

(Guest)

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

madhura (director) (32 Points)
Replied 17 February 2011

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.

Riya paika (none) (21 Points)
Replied 27 September 2011

bad debts (exp)

pro for bad debts

when debts arrives

pro for bad debts

debtors

it s right or wrong,, pls comment

Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 27 September 2011

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

1 Like

ACCOUNTANT (Student) (559 Points)
Replied 27 September 2011

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..