What are the Accounting treatments for Bad Debt, Doubtful Debt And Provision For Bad Debt?

Doubtful debts A/C ...... dr

        Provision for bad and doubtful debts A/C .........cr.

When confirmed  that companywill not receive any due amount from the clients.

.Provision  for bad and doubtful debts A/c .....dr

                   Debtors A/c ..........cr. 

If you are sure that your certain receivable(s) is/are dead and can not be collected now, you pass it directly to expense. Journal entry will be following.

Bad Debt Exp ---------------Dr

  Receivable Account ----------------Cr

If your some receivables getting old and you have doubt that these receivables will not recover, you start to create provision for those kind of receivables. In this method you keep your receivables in your books and create a provision against expense. This provision is adjusted in your balance sheet against net receivables. Journal entry will be following.

Bad Debt Expense ------------- Dr

   Provision for Bad Debts ------------ Cr

This is a good practice to keep some provision of bad debts some % of your receivables every year so that any future bad debts can not put bad impact on your future income statement.

We generally create provision for doubtful debts instead of writing off the debts, so to create a provision, the entry should be : Bad and doubtful debts A/C ...... dr and Provision for bad and doubtful debts A/C .........cr. Please note we are creating only a provision here, debtors accounts remains unaffected. 

Once it is confirmed that the debt is not recoverable and management approves to write off the debt from books, the following entry should be passed - Prov. for bad and doubtful debts A/c .....dr and Debtors A/c ..........cr. So in the year of actual write - off only the provision is reduced and nothing is affecting the expenses account.

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the best answers Mr.Owais Akbar   

these are accounting treatment Provision & expense out on historical calculation basis.

3 way of treatment of bad debt and its allowance 

1- direct written off  ( when there is no allowance for bad debts ) : when the firm determine the debts can not be collected 

and the entry will be 

DB : bad debt expense 

CR : account receivables .

when there is an allowance the next2 approaches  support this 

2- balance sheet approach ( percentage of account receivable balance ) 

: this approach assume the firm will take a percentage of balance of account receivables and this percentage express the ending balance of allowance for bad debts at the end of reporting period . 

the entry will 

DB  : bad debt expense  

CR : allowance for bad debts 

3- income statement approach : this approach directly take the bad debt expense as a percentage from sales or ( net sales ) and the entry will be 

DB : bad debt expense ( the percentage of sales ) 

CR :allowance for bad debts 

Bad Debt can be written off using below entry

DR. ALLOWANCE FOR BAD DEBTS (EXP'S)

CR. ACCOUNT RECEIVABLE 

if you wish to take only a provision against doubtful receivables, pass below transaction.

DR. ALLOWANCE FOR BAD DEBTS (EXP'S)

CR. PROVISION FOR ALLOWANCE OF BAD DEBTS

Under above entry, Provision for bad debts acts as a contra asset account. Later you may close provision for bad debts with account receivable upon realizing the actual unrecoverable receivable amount. 

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i agree with the answers

In accordance new expected loss model under IFRS9 initially a credit loss allowence/provision will be required measured for  trade recieveables(financial asset) based on 12 month expected losses.If there is a significant financing element then the credit loss allownce/provision will be based on present values discounted at market rate and subsequently unwinding .

Subsequently if credit worthiness not detoriated then 12 month's expected loss will be continued however if credit worthiness detoriate/impaired then lifetime expected losses will be recognised.For credit impaired recieveables a direct charge will be made to recieveables  and P&L account.

Entries will be

Initial:

       Dr. P&L                    xx

       Cr. Loss allownce    xx

Subsequent 

       Dr.P&L                     xx

       Cr. loss allownce     xx      (if credit loss allownce reduces then the entry will be reversed)

 If credit impaired

       Dr.P&L                    xx

       Cr. recieveables     xx

In balance sheet recieveables will be shown net of any credit loss allownce/provision.

However for non financial companies a simplified accounting treatment is allowed.

In this method lifetime  expected losses will be recognised initially instead of 12 month's expected loss.For those recieveables with significant financing element it is optional treatment.Provision matrix based on historical experience along with expected events in future is allowed to calculate lifetime expected losses.

The provision for doubtful debts is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. It is identical to the allowance for doubtful accounts.  The provision is used under accrual basis accounting, so that an expense is recognized for probable bad debts as soon as invoices are issued to customers, rather than waiting several months to find out exactly which invoices turned out to be uncollectible. Thus, the net impact of the provision for doubtful debts is to accelerate the recognition of bad debts into earlier reporting periods.