Making of provision for bad debts accounts

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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 .

Comments

: 2

SwayamApril 4, 2009 at 9:25 PM
Dear Sir,
Hello my name is Swayam Das. I'm doing my CIA+ course from ICA !!
Can you kindly tell me that in Tally if we want to open an a/c online then we do "Alt+C" !! But for opening Bad Debt A/c please tell me that under which group does it fall ?? Indirect Expenses ??
Vinod KumarApril 5, 2009 at 1:01 AM
Yes ! you are right

but we can make also special subgroup of loss because it is not expense but it is loss of business but due to effect on profit and loss account is same so , you can keep bad debts account under indirect expenses.

Thanks for query and do hard work for succeed in your career .