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Outstanding balance of Debtors

Atif (CA Final) (40 Points)

06 August 2008

Hi,

If there is a debit balance in an account, which is in the nature of advance given to a person(No sales affected) and which i outstanding for many years, hence not recoverable. What is the entry to be passed? and what would be the implication of the same for Tax purposes. plzz specify which section of IT Act to be referred.

Plzzz clarify

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9 Replies

Hemant Kyal (Service) (348 Points)
Replied 06 August 2008

it will taken to income

ntry will b

Dr. P/L A/c

Cr. Advance to customer

in tax also it will be taken as income

Pooja Chopda (Practising Chartered Accountant) (931 Points)
Replied 06 August 2008

It will nt be income...but an exp..bal w/off.

(Guest)

Dear Atif

If there is any unrecoverable balance lying in debtors account then you should be debit 'sundry balance return off A/c and credit the customer.

As the entry appeared in P/L A/c it will impacted on profit also as well as tax.

CA Hemant T Dewani (Chartered Accountant) (3356 Points)
Replied 06 August 2008

rajesh ans is right one

Atif (CA Final) (40 Points)
Replied 06 August 2008

Originally posted by :Rajesh

Dear Atif
If there is any unrecoverable balance lying in debtors account then you should be debit 'sundry balance return off A/c and credit the customer.
As the entry appeared in P/L A/c it will impacted on profit also as well as tax.

But than when i gave the advance to the party it was never routed through P&L A/c. How can i charge this to P&l A/c as this has the impact of Reducing my profit. Plzz clarify which section of IT Act will be applicable.

H S Rajashree (MBA in Finance) (221 Points)
Replied 06 August 2008

Originally posted by :Guest
"	Originally posted by :Rajesh " Dear Atif If there is any unrecoverable balance lying in debtors account then you should be debit 'sundry balance return off A/c and credit the customer. As the entry appeared in P/L A/c it will impacted on profit also as well as tax. But than when i gave the advance to the party it was never routed through P&L A/c. How can i charge this to P&l A/c as this has the impact of Reducing my profit. Plzz clarify which section of IT Act will be applicable. " You are confusing the transaction. If it is a debtor, what have you paid to them?	"

Atif (CA Final) (40 Points)
Replied 06 August 2008

Originally posted by :Atif
"	Hi, If there is a debit balance in an account, which is in the nature of advance given to a person(No sales affected) and which i outstanding for many years, hence not recoverable. What is the entry to be passed? and what would be the implication of the same for Tax purposes. plzz specify which section of IT Act to be referred. Plzzz clarify	"

(Guest)

Dear Atif

When ever you given the advance the same was shown in the Loans & advance (Current Assets). now the same has been convert in to 'Bad Debts' and should be dr in P/L a/c.

As you had paid money as advance to some one against sales. If any goods delivered him against the advance it will be consider in to sales, but there was no movement of goods and the advance is also not received back. So that it will consider as an expenses and accounted under 'Bad Debts' or ' Sundry Balance Written off" . this will impact that the Dr balace of the debtors is now cleared.

1 At the time of Paymant of Advance

Customer/Debtor A/c Dr.

To Cash/ Bank

2. At the time of Written Off

Bad Debts/Sundry Balance Written off A/c Dr.

To Customer/Debtor A/c

If still teher is any confusion then you may refer the primary books of account and also you can search the IT provision at incometaxindia.gov.in.

Rajesh

manmohanca (12 Points)
Replied 29 December 2010

Can anybody tell me what should be the policy of amount to be written off in case where there is old credit balances of debtors i.e. advance received from debtors