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b32 Note: since there is a negative balance, either it should show in credit side of profit and loss account or it should be sustracted
b32 Note: since there is a negative balance, either it should show in credit side of profit and loss account or it should be sustracted while getting total of debit side of profit and loss account. Balance Sheet as on 31.3.2017 Amount Assest Debtors Less: Further Bad debts 58600 600 58000 5800 Less: Provision 52200 . Important points: If bad debts are given in adjustments outside the trial balance, it should be subtracted from balance of debtors for the purpose of calculation of provision on debtor. Provision created during current year is debited to profit and loss account and treated as expense for the year. Bad debts account is closed by transfer to provision for bad and doubtful account and not to profit and loss account. To find out the amount to be recorded in profit and loss account, either provision for bad and doubtful debt account is prepared or statement can be prepared as discussed in the earlier paragraph. Amount of provision for bad and doubtful debts for current year can be calculated as follows: Balance of Provosion to be maintained = Given % X (Balance of Debtors in trial balance minus Further Bad debts given in adjustment minus mutual debts minus Sale on approval basis minus Good Debtors) Illustration 3 A Partial Trial Balance of a trader is given below Trial Balance as on 31.3.2017 Particulars Debtors Bad debts. Provosion for doubtful debts (1.4.16) Amount Dr. Cr. 2,55,000 10.000 20,000 Additional Information 1. After preparing trial Balance it is known that a debtor Ramesh has become insolvement and therefore, the entire amount of 5000 due from him is irrecovereble. 2. Keep the provision for bad debts @ 10% on debtors Make necessary adjustment entires and show their effect in final accounts
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