Bad debts, allowances for doubtful debts, and provisions for discounts on accounts receivable

5 important questions on Bad debts, allowances for doubtful debts, and provisions for discounts on accounts receivable

What are bad debts and how are they charged?

Bad debts occur when customers don't pay for the goods sold to them on credit. They are charged to the income statement as an expense when calculating the net profit or loss for the period.

What are the journal entries for bad debts?

To record a bad debt, you credit the debtor's account to cancel the asset and increase the expense account by debiting it to the bad debts account. At the end of the period, the total of the bad debts account is transferred to the income statement.

What are the accounting entries needed for the allowance for doubtful debts?

Year in which the allowance is first made:
1. Debit the profit and loss account with the amount of the allowance (i.e. deduct it from gross profit as an expense)
2. Credit the Allowance for doubtful debts account.
  • Higher grades + faster learning
  • Never study anything twice
  • 100% sure, 100% understanding
Discover Study Smart

How is the allowance for bad debts shown in the statement for financial position?

It is deducted from the accounts receivable total.

How are the entries made when bad debts are recovered?

1. Reinstate the debt by making the following entries:
Dr Debtor's account
Cr Bad debts recovered account

2. When payment is received from debtor in settlement of all or part of the debt:
Dr Cash/bank
Cr Debtor's account

The question on the page originate from the summary of the following study material:

  • A unique study and practice tool
  • Never study anything twice again
  • Get the grades you hope for
  • 100% sure, 100% understanding
Remember faster, study better. Scientifically proven.
Trustpilot Logo