Question

An extract of Trial balance from the books of Tahiliani and Sons Enterprises on December 31, 2005 is given below

$\begin{array}{ccc}\text{Name of Account}& \text{Debit Amt. (Rs)}& \text{Credit Amt. (Rs)}\\ \text{Sundry debtors}& \text{50,000}& \\ \text{Bad debts}& \text{6,000}& \\ \text{Provision for doubtful debts}& & \text{4,000}\end{array}$

Additonal Information:

1. Bad debts proved bad but not recorded amounted to Rs. 2,000.

2. Provision is to be maintained at 8 % of Debtors.

Give necessary accounting entries for written off the bad debts and creating the provision for doubtful debts account. Also, show the necessary accounts.

Answer 1

$\begin{array}{ccc}& \text{Journal Entries}& \end{array}$

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{LF}& \text{Amt.(Dr)}& \text{Amt. (Cr)}\\ \text{(i)}& \text{Bad Debts A/c}Dr& & \text{2,000}& \\ & \text{To Sundry Debtor's A/c}& & & \text{2,000}\\ & \text{(Bad debts charged from debtors)}& & & \\ & \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_& & & \\ \left(ii\right)& \text{Provision for Bad Debts A/c}Dr& & 8,000& \\ & \text{To Bad Debts A/c}& & & \text{8,000}\\ & \text{(Account of bad debts transferred to provision}& & & \\ & \text{for bad debts account (6,000 + 2,000)(Previous}+& & & \\ & \text{New)}& & & \\ & \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_& & & \\ \left(iii\right)& \text{Profit and Loss A/c}Dr& & \text{7,840}& \\ & \text{To Provision for Doubtful Debts A/c}& & & \text{7,840}\\ & \text{(Amount of provision for doubtful debts}& & & \\ & \text{transferried to profit and loss account}& & & \end{array}$

$\begin{array}{ccc}\text{Dr}& \text{Bad Debts Account}& \text{Cr}\end{array}$

$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ \text{2005}& & & & \text{2005}& & & \\ \text{Dec 31}& \text{Balance b/d}& & \text{6,000}& \text{Dec 31}& \text{Provision for}& & \\ \text{Dec 31}& \text{Sundry}& & & & \text{Doubtful}& & \\ & \text{Debtors A/c}& & \text{2,000}& & \text{Debts A/c}& & \text{8,000}\\ & & & \overline{\underset{–}{8,000}}& & & & \overline{\underset{–}{8,000}}\end{array}$

$\begin{array}{ccc}\text{Dr}& \text{Provision for Doubtful Debts Account}& \text{Cr}\end{array}$

$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ \text{2005}& & & & \text{2005}& & & \\ \text{Dec 31}& \text{Bad Debts A/c}& & & \text{Jan 1}& \text{Balance b/d}& & 4,000\\ & \text{(6,000 + 2,000)}& & & \text{Dec 31}& \text{Profit \& Loss}& & 7,840\\ & \text{(Old + New)}& & \text{8,000}& & \text{A/c}& & \\ \text{Dec 31}& \text{Balance c/d}& & & & & & \\ & \text{(48,000}\times \text{8}\%)& & 3,840& & & & \\ & & & \overline{\underset{–}{11,840}}& & & & \overline{\underset{–}{11,840}}\end{array}$

$\begin{array}{ccc}\text{Dr}& \text{Debtors Account}& \text{Cr}\end{array}$

$\begin{array}{cccccccc}\text{Date}& \text{Particular}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ \text{2005}& & & & 2005& & & \\ \text{Dec 31}& \text{Balance b/d}& & \text{50,000}& \text{Dec 31}& \text{Bad Debts}& & \text{2,000}\\ & & & & & \text{A/c}& & \\ & & & & \text{Dec 31}& \text{Balance c/d}& & 48,000\\ & & & \overline{\underset{–}{50,000}}& & & & \overline{\underset{–}{50,000}}\end{array}$