Bad debt & Provision for doubtful debt
by Shu Zhen
1. Reasons for incurring bad debts:
2. Customers going bankrupt
3. Dr: Doubtful debt xx
4. Doubtful debt:
5. Cr: Balance sheet xx
6. Trade dispute
7. Why do we need to have provision for doubtful debt?
8. The allowance for doubtful debt reduces the recievable balance to the amount that the entity prudently estimates to recover in the future.
9. Bad debt :
10. Cr: Debtors xx
11. Dr: Bad debt xx
12. Fraud
13. Difference between bad debts and doubtful debts:
14. Bad debt is an account receivable that has been clearly identified as not being collectible. Doubtful debt is an account receivable that might become a bad debt at some point in the future.
15. Effect of bad debts, recovery of bad debts and provision on doubtful debts on net profit and net debtors in the Balance Sheet:
16. Net profit will decrease as expense increases. Net debtor decreases as there is a decrease of the amount of debts that are unrecoverable.
17. Bad debts:
