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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:
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:
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:
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: