I have a doubt regarding bad debts provision. what happened was in order to bring down profit, i picked some old debtors and transferred them to bad debts account.But instead of crediting the debtors ledger i created another head under debtors as provision for doubtful and bad debts and passed the entry as follows :
Bad Debts a/c Dr To Provision for Bad & Doubtful debts.
My question is in case after mayb 1 or 2 years if any of the above debtors settle or give us credit note, what will be the treatment in that particular year..such that the amount can be credited from the debtor account and provision for bad and doubtful debts account too..
Pls reply asap and thanks a lot for the reply in advance...
10 June 2011
thanks for the reply...its not the final settlement. This is regarding settlement of some particular bills. So this means that when u get back the amount as in cash or material returns, v have to show it as income in P/L(Bad debts in ur reply)right? pls assure me..
Suppose if its the final settlement, the credit note amount will stand debited to party account right, so will the debtors account be closed in the foll manner? Material Returns Dr (Credit Note amt) To Debtors a/c (Credit Note amt)
Is this the correct treatment? Thanks a lot for the earlier reply and thanks in advance for this one too..
CAclubindia
