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When ever seller incurres a loss then immediately he pass the entry of bad debt by debiting it. And
crediting the sundry debtors case ofBad Debt seller closes the account of customer. But
sometimes after writing off , bad debt if any amount is received then it is called the recovery of bad

In the Books of Seller :

When Bad Debt is recovered :

Bank A/c ---------------------------------Dr.

To Bad Debt Recovery account.

When Provision for bad and Doubtful debt accounts is maintained then for closing the bad debt
recovery following entry is passed.

Bad Debt recovery a/c ---------------------------Dr.

To Provision for Bad debt and Doubtful account

( Bad Debt is adjusted with PBDD a/c .and Bad debt recovery a/c is closed )

In all other cases :

Bad Debt Recovery a/c ------------------------Dr.

To P/L Account

(The Bad debt recovery amount is transferred to P/L a/c)

Prob 1:

On 1.1.89, A& co. had a provision for bad debts of Rs. 10880. The Bad debts during the year 1989
amounted to Rs. 9040. The debtors as at 31.12.1989 were Rs. 224000. Provision for Bad debt@5% is
maintained by the business . Bad debts during the year 1990 and 91 were rs. 11680 and 4160
respectively. The sundry debtors as at Rs. 31.12.90 and 31.12.1991 were rs. 288000 and rs. 136000.

Prepare necessary ledger account in the books of A & Co. and also how it would appear in the P/L A/c
for the year 1989 and 1990.
Prob 2:

A ltd. Makes provision for doubtful debts at the end of each year against specific debtors.

On 31.12.1985 the undermentioned debtors balances were considered doubtful and provided for B – Rs.
1500 : C – 400: D—250

Following are the particulars for the year ended 31.12.1986

a) Bad Debts written Off : B---1200: E--- 300 : p--- 200

b) Bad Debts recovered : R--- 700: S---600 : N---500;
c) Bad debts considered doubtful at the end of the year G---800; H----900; K---1000
Debts considered doubtful at the commencement of the year 1986 were either realized or written
off as bad debt.

Write up the bad debts account and PBDD for the year ended 1986.


IF The firm is to allow cash discount to customers for early payments , then firm may receive
discount and which can be treated as income in P/L Account .

Such discount will be taken in the next year but should be taken into account in currents year
account. It is related to creditors. So we will create a reserve for discount on creditors.

Journal Entries :
1. When discount is received from the creditors.

Sundry Creditors A/C ------------------------Dr.

To Discount Received A/C

2. For Closing the Discount received to P/L account.

Discount Received A/C --------Dr.
To P/L A/c

3. When a reserve is created for the first time

Reserve for discount on creditors A/C --------Dr.

To P/L A/c
Entries in the 2nd year and subsequent year

When discount is received from the creditors

Sundry Creditors --------------------Dr.
To Discount Received A/C

At the end of the accounting year the discount received account is closed by transferring it ot
the reserve for discount on creditors account :
Discount Received ---------------------------Dr.
To Reserve for discount on creditors A/C

For creating the reserve for the next year

Reserve for discount on creditors -----------------Dr.

To P/L A/c****

**** Calculation

Closing Reserve required *****

Add: Discount Received during the year *****
Less: OP. Balance of reserve *****

Amount to be credited to P/L A/C . *****