Bad Debts

When the goods are sold to a customer on credit and if the amount becomes irrecoverable due to his insolvency or for some other reason, the amount not recovered is called bad debts. For recording it, the bad debts account is debited because the unrealised amount is a loss to the business and the customer’s account is credited.

Example 21 : Jamuna who owed us Rs.10,000 is declared insolvent and 25 paise in a rupee is received from her on 15th July, 2003.

Solution:

Journal

Date	Particulars	L.F	Debit Rs.                           P.		Credit Rs.                         P.
2003	Cash A/c                                                     Dr.		2,500	—
July 15	Bad Debts A/c                                          Dr.		7,500	—
	To Jamuna A/c				10,000	—
	(25 paise in a rupee received on her insolvency)

 

Bad Debts Recovered

Some times, it so happens that the bad debts previously written off are subsequently recovered. In such case, cash account is debited and bad debts recovered account is credited because the amount so received is a gain to the business.

Example 22: Received cash for a Bad debt written off last year Rs.7,500 on 18th January, 2004.

Solution:                                                                                          Journal

Date	Particulars	L.F	Debit Rs.      P.		Credit Rs.         P.
2004 Jan 18	Cash A/c                                    Dr. To Bad debts recovered A/c (Bad debts recovered)		7,500	—	7,500	—