Cash method of Accounting

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Devendra (Querist)
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31 January 2011 A CA Firm has adopted Cash method of Accounting. They have not received the payment of work done for A.Y 07-08 (ie. Rs. 7500) from the client. Can they write off the balance? If yes, then what will be the entry?

And my friend said that the balance cannot be treated by showing it as Bad Debts. Whether he is right?.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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31 January 2011 Devendra Bhai,

When accounts are maintained on Cash Basis,
whatever is received, is only considered as an income or receipt.
*

You can write off the amount if you have earlier shown the Fee as income.
As the Fee of Rs 7500/ has yet not been received it has not been shown as income yet.
*
Hence, when the amount which has been not
written in the books of account by following cash basis, can not be written off. For writing "off" you have to first write "on" in the books of A/c.
*
If there is no debt in the book question of good debt or bad debt will not arise.

Devendra

Devendra (Querist)
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01 February 2011 Can the following Journal entry be passed in the books :-

Bad Debts A/c Dr. 7500
To Party A/c 7500
(Being balance w/off)

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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01 February 2011 In cash system if you credit the party a/c ,
How will you clear it ? as the party account could not be debited.

(Please do not reverse this entry.)

As such no need to pass "Bad Debts" entry.

(It is Bad to show balance of Receivables in Cash System, It's shown in Mercantile system )

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