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    Adjusting For Bad Debts

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    samahase
    This document defines bad debts as debts that are unlikely to be paid. It provides examples of situations that could result in bad debts, such as a customer declaring bankruptcy. It explains that bad debts should be written off through journal entries to properly account for losses and avoid overstating profits. The journal entry debits a bad debt expense account and credits the customer account to reduce the amount they owe. Examples are provided to illustrate writing off partial bad debts through journal entries.

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    Adjusting For Bad Debts

    Uploaded by

    samahase
    117 views16 pages
    This document defines bad debts as debts that are unlikely to be paid. It provides examples of situations that could result in bad debts, such as a customer declaring bankruptcy. It explains that bad debts should be written off through journal entries to properly account for losses and avoid overstating profits. The journal entry debits a bad debt expense account and credits the customer account to reduce the amount they owe. Examples are provided to illustrate writing off partial bad debts through journal entries.

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    ADJUSTING FOR BAD DEBTS.ppt

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    This document defines bad debts as debts that are unlikely to be paid. It provides examples of situations that could result in bad debts, such as a customer declaring bankruptcy. It explains that bad debts should be written off through journal entries to properly account for losses and avoid overstating profits. The journal entry debits a bad debt expense account and credits the customer account to reduce the amount they owe. Examples are provided to illustrate writing off partial bad debts through journal entries.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    117 views16 pages

    Adjusting For Bad Debts

    Uploaded by

    samahase
    This document defines bad debts as debts that are unlikely to be paid. It provides examples of situations that could result in bad debts, such as a customer declaring bankruptcy. It explains that bad debts should be written off through journal entries to properly account for losses and avoid overstating profits. The journal entry debits a bad debt expense account and credits the customer account to reduce the amount they owe. Examples are provided to illustrate writing off partial bad debts through journal entries.

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    © All Rights Reserved
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    Download as ppt, pdf, or txt
    of 16

    Accounting for

    BAD DEBTS
    OBJECTIVES
    At the end of lesson you should be able to:
     Define and explain the term Bad Debt.

     Prepare journal entries to write off bad


    debts.
    REVENUE OF BUSINESS
    CREDIT SALES
    Buy Now Pay Later

    COLLECT
    Cash • Good Debtors
    From
    DEBTORS
    Uncollectible
    Write Off
    • Bad Debtors

    Provide for
    • Doubtful Debts
    • (May Go Bad)
    What is a Bad Debt?
    Definition:

    A Debt that is unlikely to


    be paid is known as a
    Bad Debt.
    Can you identify any situation
    where a Bad Debt can arise?
     Customer is declared bankrupt

     Customer dies

     Customer refuses to pay and a long


    period of time has passed

     Customer cannot be found


    Why should Bad Debts be
    Accounted for?
     Once a business knows for
    certain that a debt cannot be
    collected, it is deemed to be a
    BAD DEBT and should be
    written off.
    Why should Bad Debts be
    Written Off ?

     This is in accordance with the


    Prudence Concept ( whereby
    profits are not overstated and
    losses are written off as soon as
    they are foreseen).
    Journal Entry to Write-Off Bad
    Debts

    A Bad Debt Expense account is created


    to hold all bad debts until write off at year’s
    end.
    Journal Entry
    Debit : Bad Debt Expense a/c
    (Why? To transfer the amount of unpaid
    debt to BAD DEBTS a/c)

    Credit : Customer’s /Debtor’s a/c


    ( Why? To reduce the liability of the debtor
    who is unable to settle debt)
    Example:
    S. Lall is a debtor who owes $820.
    She has become bankrupt and has agreed to pay 20 cents
    on the dollar owed. Her balance is to be written off as bad
    on 01 June 2008
    JOURNAL ENTRY REQUIRED:

    DATE DETAILS DEBIT $ CREDIT $


    Example:
    S. Lall is a debtor who owes $820.
    She has become bankrupt and has agreed to pay 20 cents
    on the dollar owed. Her balance is to be written off as bad
    on 01 June 2008
    JOURNAL ENTRY REQUIRED:

    DATE DETAILS DEBIT $ CREDIT $


    June 01, 2008 Cash ($820 x 0.20) $164

    Bad Debt Expense $656


    ($820 - $164 = $656)

    S. Lall (debtor a/c) $820

    Being Bad Debt written


    off after part payment
    Activity 1- Write up Journal
    Entry for the following:

    J. Mc Intosh owes $1050. Due to


    financial difficulty he is only able to pay
    50 cents on every dollar.

    On 01 July 2008, it was decided to write


    off part of the debt as bad.
    SOLUTION
    DATE DETAILS DEBIT$ CREDIT$
    SOLUTION
    DATE DETAILS DEBIT$ CREDIT$

    June 01, 2008 Cash ($1050 x 0.50) $525

    Bad Debt Expense $525


    ($1050 - $525 = $525)

    S. Lall (debtor a/c) $1050

    Being Bad Debt written off


    after part payment.
    THE END
     SUMMARY: You should now be able to
     Define and explain the term Bad Debt.
     Prepare journal entries to write off bad
    debts
     QUESTIONS?
     Home-Work
     Exc. 25.1 pg 264

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