Closing and opening entry of provision for D.D.

In accounting, there is no "journal entry" to open or close the Provision for Doubtful Debts account in the same way you might close temporary revenue or expense accounts to the Income Statement. Instead, the account is adjusted at the end of each financial period to reflect the new estimated amount.

The process involves determining the closing balance (the new required provision) and then calculating the adjustment to be passed through the Profit & Loss (P&L) account.

1. Determining the Closing Balance

At the end of the year, calculate the required provision based on your chosen method (e.g., a percentage of total debtors). This becomes the Balance c/d (carried down) on the credit side of the Provision for Doubtful Debts account.

2. The Adjustment Entry

You compare the existing balance (brought forward from the previous year) with the new required amount. The difference is the amount that must be adjusted in the Profit & Loss account.

• If the Provision needs to increase:

  You are creating an expense.

  • Debit: Profit & Loss A/c

  • Credit: Provision for Doubtful Debts A/c

• If the Provision needs to decrease:

  You are releasing an excess provision, which acts as income.

  • Debit: Provision for Doubtful Debts A/c

  • Credit: Profit & Loss A/c

3. "Opening" the Account

The "opening" of the account for the new financial year is simply the Balance b/d (brought down). After you close the books for the current year, the Balance c/d from the credit side of the ledger is brought down as the Balance b/d on the credit side for the start of the next period.

Summary Example

• Opening Provision (Balance b/d): ₹5,000 (Credit)

• New Requirement: ₹8,000 (Closing balance c/d)

• Adjustment Required: Increase of ₹3,000.

Journal Entry:

Summary: The Provision for Doubtful Debts is a permanent contra-asset account. You do not close it to zero. Instead, you calculate the new required balance, and the difference between the existing balance and the new requirement is debited or credited to the Profit & Loss account to adjust the provision to the correct level.