Accounting For Bad And Doubtful Debts Step By Step
Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
Posting to ‘provision for doubtful debts account’ and ‘bad debts account’
You will need:
- the journal
- the nominal ledger
- the sales ledger.
Step by step
- 1.Decide the percentage figure and from that the actual amount you will use as a provision for doubtful debts (e.g. 1% or 2%).
- 2.Write in the next available space in the journal the date (in the date column) and the words ‘profit and loss account’ in the particulars column.
- 3.Enter the value of your provision in the debit cash column.
- 4.Beneath the last entry in the particulars column, indenting slightly, write: ‘provision for doubtful debts’.
- 5.Enter the same value in the credit cash column.
- 6.Repeat the process when writing off any actual bad debts, but in this case you need to debit the bad debts account and credit the individual debtor accounts.
- 7.Now post to the nominal and sales ledger, exactly following the instructions you have just written in the journal.