Difference between write off and bad debts

Here your accounting treatmnet is Good enough but you should confirm one thing that under grouping of the bad debts Account should in Indirect expense here treatment should be like this  

Bad debts (profit and loss ) dr

To Individual (Balance sheet) cr

Here you just written off the bad debts amount in direct method by closing the balance sheet item againest profit and loss account.

1. if we just created an account in the As bad debts (Sundry debtors(current assets)) and transfor the amounts in individual accounts into bad debts account and the entire amount will reflect in the balannce sheet as bad debts as recivables amount. this is the thing of showing the debts as bad in BS.

2 her also create an account as bad debts (indirect expence ) and individual accounts will be transforred to this and it will directly reflect in P and L a/c and this amount will no longer appear in balance sheet because its just Adjusted againest the profit so far and this method will known as write off of bad debts.

Hope you will get clarity..

Hi Hari, Thanks for the clarifiaction;however, I need a difference between these3 entries as below which is write off entry:

1) Bad Debt ....Dr

S.Debtors/Individual account ....Cr

2) P&L .....DR

Sundr debtor/Individual ac .....CR

3) Profit and Loss account .....DR

Provision for Bad debts..............CR

 

Here, in the first case , you are writing off an amount as bad from your debtors account through 'bad debts account' whic will ultimately be transwered to p &l a/c . While in the second case you are passing a single entry and transferring the amount to be written off directly to p&l a/c. First case is better reflection of the position aa otherwise your p&l a/c will show names of your debtors on debit side which should however be classifies under bad debts. 

In third case , you are just creating a provision for bad debts as you think might go bad and not actually writing off any debt as bad which could be because of reasons like uncertainty of amount , etc.

OK case 1
here you just creating an account as bad debts and transfering the individual debt balances to bad debts account and showing in balance sheet

in case 2
here u are directly written off the amount against the profit and that debt will disappear from balance sheet .

in case 3
you creating a provision and it will have same effect as case one and in future when ever required you can transfer this amount as expense to p and l book the loss and bad debt will get finished.

No.....

In case 1 , the bad debts a/c will be transferred to p&l a/c at year end and will not show in balance sheet. 

And in case 3, you have already expensed an estimated amount of bad debts from p&l a/c in current year so if there are any bad debts then first of all that will be written off from the provision created and only the amounts exceeding the provision will be expensed from p&l a/c. But yes, the provision will show in balance sheet here. 

Mam,

How can we directly say that in 1 st case amount is directly got transforred to P and L a/c .

can't we show the all bad debts in individual accounts in a single account in bad debts a/c( sundry debtors ) in balance sheet until it got transforred to P and L a/c ?

here in 1st case 

Bad Debt ....Dr

S.Debtors/Individual account ....Cr

He just not specified that under which head bad debts under grouped then we can conclude that entire amount will go to Pand L account.

Mam can u plese explain one thing 

can't we show the bad debts in balance sheet before it got transforred to P and L a/c
 

Thats what we do. We show all individual bad debts in a single accountbcalled Bad Debts Account. And 'Bad debts 'a/c is in the nature of indirect expense account. And all indirect expense accounts are transferred to p&l a/c at year end. 

If you don't transfer it to p&l account then your profits will be wrongly inflated. And when do you plan to transfer it otherwise? In the next year? That would only deflate the profits of next year!!