Bad debts treatment

I have a query regarding bad debts.
For example
A party is not ready to pay the amount against the sales. Now how to close the balance outstanding in the ledger of the party.
If I created a bad debts expense acc and credited the party ledger.
Is it the correct method or need to create a provision first.?
Will it affect the sales? If yes, then will it match with the GST turnover and 26AS.?
Help me with the correct solution with the journal entries.
Replies (3)
Quick Summary
This discussion clarifies the accounting treatment for bad debts. It explains that for registered companies, a provision for bad debts should be created before writing off, while sole proprietors or firms can write off directly. The correct journal entries involve debiting the bad debts expense account and crediting the party's ledger. While bad debts are treated as an indirect expense and impact financial statements, they generally do not affect GST turnover or 26AS directly, though they need to be reported in GSTR-9.

Debit Bad Debts account and Credit the Party's account.

It will not have any bearing upon sales, GST turnover or 26AS.

Hi,

If you are talking about registered company then you have to make provision before writing off, if its a sole proprietor or Firm then write off directly.

Matching with GST Turnover - This issue arise in case if you are offsetting the balance by Dr or Cr notes anyhow bad debts will be shown under indirect expenses. you need to show this in 5O in GSTR-9.

First of all create a provision for bad debt.

Provision for bad debt a/c dr
to Bad debt a/c

GST turnover should be related to the turnover you have shown in returns because gst turnover and in financial statements turnover there should be mismatch as per different principles of both the aspects. But bad debt should be required to shown in annual return.

In 26AS there will be no effect.

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