What is Bad Debt | Example | Journal Entry

Bad debts feature image

The Bad Debt is the amount that can not be recovered from the debtors because of any reason i.e. Debtors shut down his business, or become insolvent, etc.

What is Bad debt?

Bad debts are that amount which we can not recover from 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.

The Journal entry for Bad debts

with Golden rules

We will Explain the Journal entry for Bad debts with the golden rule of accounting shown as following: –

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 -> Loss -> 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

Journal entry for Bad debts with modern rules

We will Explain the Journal entry for Bad debts with modern rules of accounting shown as following: –

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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