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Provision charged for bad debts,later the amount in recovered..
There are two ways to account for the provision of bad debts: direct or allowance method
Under direct method:
Bad debts is only recognized when the accounts receivable is unlikely to be recovered.
Entry to record bad debts:
Dr. Bad Debts
Cr. Accounts Receivable
When the bad debt is recovered, there will be 2 entries: 1. Reverse the bad debts provision and 2. Record the collection
1. Dr. Accounts Receivable
Cr. Bad Debts
2. Dr. Cash
Cr. Accounts Receivable
Under the allowance method, the company sets an estimate of accounts receivables.
Journal entry for bad debts provision:
Dr. Bad Debts
Cr. Provision for Bad Debts
When an account is found to be uncollectible, then that account will be written off.
Entry to record write-off of bad debts:
Dr. Provision for Bad Debts
Cr. Accounts Receivable
When the written off account is recovered, the entry to recover for bad debts is:
1. Dr. Provision for Bad Debts
Cr. Accounts Receivable
2. Dr. Cash
Cr. Accounts Receivable
cash Dr
icome statement Cr
ENTRY FOR BAD DEBT PROVISION IS
BAD DEBT Expenses A/c Dr
Provision for Bad Debt A/c Cr.
When debt is collected than entry will be as follows After the recovery of amt
Cash / Bank A/c Dr
Receivable/Debtor A/c Cr
cash account..dr
To
bad debts recovered
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