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.
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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:
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:
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:
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:
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