Question

The following are the extracts from Trial Balance of a business.

• Sundry Debtors = 40,000
• Bad debts = 4,000
• Provision for bad debts = 5,000

Additional Information:

1. Provide further bad debts Rs. 2000

2. Create 10% provision for bad debts.

Pass Journal entries and show how these items will appear in the final accounts.

Answer 1

Date	Particulars	LF	Debit	Credit
	Bad debts A/c  Dr. Sundry Debtors A/c [Rs. 2000 is irrecoverable]		2000	2000
	Provision for bad debts A/c  Dr   Bad debts A/c [Bad debts a/c is closed by transferring it to the Provision account]		6000	6000
	Profit and Loss A/c  Dr.  Provision for bad debts [Bad debts provision is created @ 10% on debtors after adjusting balance in the provision a/c]		4800	4800

New Provision = (Sundry Debtors - Further bad debts) x 10/100

= (40,000 - 2000) x 10/100 = 3800

Balance sheet