Doubtful Debt Accounting

Doubtful Debt Accounting

In this article we would discus the doubtful debt accounting. Those Debts which are looking difficult to collect is known as doubtful debt.  Possible reasons of doubtful debt includes

a)    Heavy losses of customer.

b)   Major Share of  business lost.

c)    Problems with Government.

d)   Problems with Trade union.

e)    etc

Journal Entry for Doubtful Debt

Doubtful debt is recognized as expense and against which a liability is created, because amount of the expense would be confirmed in future. For example, we expect that 10,000 of debt would not be recovered from a customer.

Date	Particulars	Dr	Cr
	Doubtful Debt A/c	10,000
	Provision for Doubtful Debt A/c		10,000

Doubtful Debt accounting Nature

a)    No entry in receivable account for provision creation.

b)   There is concept of increase and decrease in provision (next years).

c)    An increase would be debited to profit & loss.

d)   A decrease would credit to profit & loss.

Journal entry for increase in Provision

Increase in provision (increased amount) is debited to profit & loss and provision for doubtful is increase (credited).

Last Year Provision        10,000

Current Year Provision   12,000

Increased Provision         2,000

Date	Particulars	Dr	Cr
	Doubtful Debt A/c	2,000
	Provision for Doubtful Debt		2,000

Journal entry for Decrease in Provision

Decrease in provision is credited to profit & loss account (as income) and provision is decreased (debited).

Last Year Provision        10,000

Current Year Provision     8,000

Decreased Provision         2,000

Date	Particulars	Dr	Cr
	Provision for Doubtful Debt	2,000
	P&L (Doubtful Debt)		2,000

Bad Debt & Doubtful Debt Combined

Bad Debt = 5,000

Provision Last Year = 10,000

Provision Current Year = 14,000

Solution

As provision for doubtful debt increase from 10,000 to 14,000. Thus further provision is created by debiting the doubtful debt and crediting the provision.

Date	Particulars	Dr	Cr
	Doubtful Debt A/c	4,000
	Provision for Doubtful Debt		4,000

Bad debt reporting this year are write off by debiting the bad debt and crediting the receivable a/c. 

Date	Particulars	Dr	Cr
	Bad Debts Debt A/c	5,000
	Receivable account  A/c		5,000

Based on the above entries the total amount charged to profit & loss account is 9,000 ( bad debt write off 5000 + Increase in provision 4000 ).