Adjustment in Profit and Loss Account II: Bad Debts, Discounts and Depreciation

Posting of Entries into Ledger

Business organizations normally sell goods on credit to customers. They have the hope that these will be paid for within a reasonable period time. At the end of the Accounting period some customer may not be able to meet their obligations and part of the debts may not be recovered.

BAD DEBTS:

These are known as irrecoverable debts. It will appear on the debit side of profit and loss account as a charge. Bad debts, therefore, takes place when the customer is unable to pay his debt. It will reduce the account of debtors in the balance sheet. Bad debts come into reality as a result of death or he insolvency of the debtor to continue his business.

ACCOUNTING ENTRIES

METHOD: Using a bad debts account only: A consolidated account is often used whereby the provision is raised and adjusted in the Bad debts thus dispensing with the separate provision account.

The Following accounts will be considered

1. Bad debts account
2. Profit and loss account
3. Balance sheet

ILLUSTRATION 1: Dare started trading on 1st January, 2000 During the two years ended 31st December 2000 and 2001, these debts were written off  to bad debt account on the dates stated.