What is Bad Debt | Example | Journal Entry

Bad debts feature image

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