Making of provision for bad debts

Before making of provision of bad debts accounts , you must understand the concept of provision , reserve etc. Because without understanding these you cannot understand the concept of making of provision of bad debts accounts .

Meaning of provision or reserve

When we start our business , we faces certain losses like bad debts , depreciation or discount so if we do not keep some part of our cash or profit in cash form in business pocket , we can face the problem of lack of money for operational requirement , so we take future planning and after scientific estimation we makes provision of reserve of our losses on the certain percentage of loss it may be 5% or 10% or 15 % . This is called provision or reserve of loss .


•Making of this account is very easy
•It will open with opening balance of provision for bad debts
•it will show in credit side of this account .
•In the debit side we will write actual bad debt of trail balance and outside
•in the debit side also writing new provision of bad debts with writing to balance c/d
•Balancing figure will be the amount of provision transferring to profit and loss account as loss written off .

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Accounting Treatment of Provision for doubtful debts

Before doing accounting treatment of provision for doubtful debts , you must know the complete definition of provision . In accounting , it is a reserve that is against loss due to non payment of debtors . In case debtor does not give us our amount . Then if we have make provision or reserve for this , we can easily purchase new goods but if we have no money due to every year bad debts then we can become insolvent . So with our work experience we should make our provision on our debtors with some % on debtor .
Now you are ready for doing the accounting treatment of provision for doubtful debts .

First of pass the journal entry of actual bad debts .

Entry for recording actual bad debt which did not record in books of business

1. Bad debts account Dr. xxxxx
To Sundry Debtors Account xxxxxx

Entry for transferring bad debts to provision for bad debts Account

2. Provision for bad debts account Dr. xxxxxx
To Bad Debts account xxxxx

Transfer of provision for bad debts account to profit and loss account

3. Profit and loss account Dr. xxxxxx
To Provision for bad debts account xxxxx

It is not necessary that provision for doubtful debt account will go only to the debit side of this account but it may go to the credit side . It will decide after making provision for doubtful debt account . Which is very easy to make . I am showing you this account . After study of this account you can easily make this account and take the benefits of this provision

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