10: Bad and doubtful debts

Question 1

Define a bad debt

Answer 1

When a debtor is unable or unwilling to pay the invoice

Question 2

Define a doubtful debt

Answer 2

When a debt becomes uncertain, money may or may not be received. Examples:

1. If there are many debtors, law of averages and human nature can suggest that a proportion may never be received.
2. Press information suggesting a customer has become insolvent or bankrupt.
3. If the debt has remained unpaid for quite a long time, it can suggest that the repayment is uncertain.

Question 3

What is the double entry for a bad debt?

Answer 3

Cr Debtors

Dr Bad debt expense

Question 4

What is the double entry for a provision for a doubtful debt?

Answer 4

Dr Bad debt expense

Cr Provision for doubtful debts

Question 5

What is the double entry for the recovery of a bad debt which had previously been written off?

Answer 5

Dr Bank

Cr Bad debt expense a/c

Question 6

What is the double entry for the recovery of a doubtful debt?

Answer 6

Dr Bank
Cr Debtors

This is simply just recording the cash received so the debtors have beenr reduced. Don’t overcomplicate!

Question 7

What is the double entry for increasing the provision for doubtful debts?

Answer 7

Dr Bad debt expense

Cr Provision for doubtful debts a/c

Question 8

What is the double entry for decreasing the provision for doubtful debts?

Answer 8

Dr Provision for doubtful debts a/c

Cr Bad debts expense