Bad Debt VS Provision of Doubtful Debt

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.

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 ,

undefined

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.

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

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

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?

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.

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?

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

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

When you are absolutely certain that a debt cannot be recovered, then it is a bad debt. When you have  resonably doubt that the debt is not fully/partly recoverable, the you make a provision for doubtful debts.

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

1)Bad debts are those which are confirm non-recovarable. entry as under:

Bad Debts A/c. Dr

To Sundry Debtors A/c Cr

(Note Bad debts a/c. reflect to P/L Ac under indirect expenses)

2) when we're in doubt of recovery of some doutfull debtors the we have make provision against the same. entry as under:

Bad Debts A/c Dr

To Provision for Bad Debts Cr

bAD DEBTS MEANS AMOUNT WHICH cannot be recovered from the debtors,in this case entry will be , Bad dedts -Dr, debtors-Cr, On the other hand hand ,provision is the amount which recovery is suspectible.

entry will be  P/L -dr, Provision for doubtful- Cr

When bad debts is confirmed in the next year and provision exist, then such bad debts amount will be debited to provision A/c or directly to the p/l A/c and corresponding credit is given to debtors A/c

Hi 

Under Which head of account i should create provision for bad debts in tally

Regards

Ranjini