Provision for Bad Debts Entry

Bad debts happens when there is no possibility to recover an amount from the debtor and that is why it is perhaps the greatest worry when you are selling goods on credit to your customers because if that happens it is a sort of unwanted loss and no company can afford it to happen however such instances happen and therefore every company makes provision for this type of loss. Given below is the provision for bad debts entry —

Bad Debt Dr

To Provision for Bad Debts

After passing the above entry one more journal entry needs to be passed in order to transfer the loss to the relevant debtor account. Given below is the entry

Provision for Bad Debts Dr

To Debtor account

Provision for doubtful debts is just an estimate which every company makes at the beginning of the year and once the actual loss happen during the year then it is transferred to this account in order to reflect the correct picture.

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