What is Bad Debt | Example | Journal Entry

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  1. What is Bad debt?
  2. Journal entry for Bad debts with the golden rule.
  3. Journal entry for Bad debts with the modern rule.

1. What is Bad debt?

Bad debts are that amount which we can not recover form account/trade receivable after applying our 100% efforts. it is also called irrecoverable debts. it is treated as the loss of the business and transfer it from assets account to loss a/c or from balance to income statement.

2. Journal entry for Bad debts with the golden rule.

Example 1:

01/01/2018 Rs 50,000/- receivable from Mr Ram become insolvent did not recover anything from his side.

B/Debts -> Loss A/c -> Nominal A/c -> Lossed -> Debit

Mr Ram -> Personal A/c-> Personal Rule -> Giver -> Credit 

The journal entry for the transaction is the following:

Bad debts journal entry  - What is Bad Debt | Example | Journal Entry
Example 2:

01/01/2018 Rs 50,000/- receivable from Mr Ram become insolvent and only 60% of total amount due recovered from his side.

cash received =50,000*60% = 30,000/-

amount of B/D=50,000-30,000 = 20,000/-

Cash A/c -> Assets A/c – > Real Rule -> Received cash -> Debit

B/Debts-> Loss A/c -> Nominal Rule -> Lossed -> Debit

Mr Ram -> Personal A/c-> Personal Rule -> Giver -> Credit 

The journal entry for the transaction is the following:

Bad debts journal entry2  - What is Bad Debt | Example | Journal Entry

3. Journal entry for Bad debts with the Modern rule.

Example 1:

01/01/2018 Rs 50,000/-receivable from Mr Ram become insolvent did not recover anything from his side.

B/Debts -> Loss A/c -> Expenses Rule -> increase in Expenses -> Debit

Mr Ram -> Assets A/c-> Assets Rule -> Decrease in assets  -> Credit 

The journal entry for the transaction is the following:

Bad debts journal entry  - What is Bad Debt | Example | Journal Entry

Example 2:

01/01/2018 Rs 50,000/- receivable from Mr Ram become insolvent and only 60% of total amount due recovered from his side.

cash received =50,000*60% = 30,000/-

amount of B/D =50,000-30,000 = 20,000/-

Cash A/c -> Assets A/c – > Assets Rule -> increase in assets  -> Debit

B/Debts -> Loss A/c -> Expenses Rule -> increase in Expenses -> Debit

Mr Ram -> Assets A/c-> Assets Rule -> Decrease in assets  -> Credit 

The journal entry for the transaction is the following:

Bad debts journal entry2  - What is Bad Debt | Example | Journal Entry

 

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