BAD
DEBTS AND BAD DEBTS RECOVERY CONCEPT, QUESTIONS AND ANSWERS.
Debt: are all transaction which
accomplished on credit/cash are not involved.
Sources
of debt.
1. Sales
on credit
2. Loan
Each business has its policy for collection of debt, when
the customer fails to pay at a specific time base on the business policy this
debt converted to bad debt.
Always
debt a recognized as an asset in the books of accounts and also.
·
normally bad debt a treated as normal expenses
to the income statement.
·
When the debt found as bad debt, an accountant
should do the following.
A. Remove
a bad debt from the assets
B. Treat
as expenses to the income statement.
Bad
debt a removed from the assets account through the following journal entry:
|
Debit |
Credit |
|
|
Bad
debt account |
Xxx |
|
|
Asset/
debtors account |
|
Xxx |
|
Being
bad debt a written off |
||
Bad debt should not have the balance forward (not appear to
the following year of income) therefore should be treated as expenses in the
year which occurred and the journal entry will be
|
Details |
Debit |
Credit |
|
Income statement |
Xxx |
|
|
Bad debt account |
|
xxx |
|
Being bad debt a written off by posting
to income statement |
||
Circumstance
which cause the bad debt:
1. 1.Bankruptcy
of the customer
2. 2. Death
of customer.
Always a bad debt it’s a secrecy of business a customer
does not know his debt a written off therefore a bad debt can be recovered.
This situation a posted to the journal entry as follows
|
Details |
Debit |
Credit |
|
Debtors accounts/ Assets account |
Xxx |
|
|
Debtors recover account |
|
Xxx |
|
Being bad debt a recover. |
||
|
Details |
Debit |
Credit |
|
Bad debt recover account |
Xxx |
|
|
Cash account. |
|
xxx |
|
Being bad debt recover a written off by
posting to income statement. |
||
Question:
1. Wanyika started Business on 30 June 2020. During the two years, 2020 and 2021 the following debts were written off to the Bad Debts Account on the dates stated:
·
31 July
2020 Koya Tsh 100,000
·
31
October 2020 Yasr Tsh 230,000
·
31 August
2021 Wilawela Tsh 90,000
·
30
November 2021 Mauga Tsh 570,000
·
30
June 2022 Kituga Tsh 330,000
Required:
open a bad debt account, extract income statement, statement of financial
position and journal entry for the two years.
Debit Debtors Account Credit
|
|
31/7/2020 koya Tsh 100,000 31/10/2020 Yasr Tsh 230,000 31/8/2021 Wilawela Tsh 90,000 30/11/2021 Mauga Tsh 570,000 30/6/2021 Kituga Tsh 330,000 |
|
|
|
|
|
|
Debit Bad debt account Credit
|
31/7/2020 koya Tsh 100,000 31/10/2020
Yasr Tsh 230,000 Total Tsh 330,000 31/8/2021
Wilawela Tsh 90,000 30/11/2021 Mauga Tsh 570,000 30/6/2022 Kituga Tsh 330,000 Total T sh 990,000 |
30/6/2021
income statement Tsh 330,000
30/6/2022
Income statement Tsh 990,000 |
Extract
income statement for the year ended June 2021 & June 2022
|
June 2021: Bad
debt Other
expense Total
Expenses
June 2022: Bad
debt Other
expense Total
Expenses
|
Tsh
330,000 Tsh
xxx Tsh
xxx
Tsh
990,000 Tsh
xxx Tsh
xxx
|
Tsh
xxx
Tsh
xxx |
EXTRACT
STATEMENT OF FINANCIAL POSITION AS AT JUNE 2020 JUNE 2022.
|
Details: June
2021: Current
assets Noncurrent
Asset Debtors
Less:
Bad debt. June
2022: Current
assets Noncurrent
Asset Debtors Less: Bad debts. |
Tsh:
Nil
xxx 330,000
Nil
Xxx 990,000
|
Tsh:
|
JOURNAL
ENTRY
JUNE
2021
|
Details |
Debit |
Credit |
|
Bad debt Account |
|
|
|
Koya |
Tsh 100,000 |
|
|
Yasr |
Tsh 230,000 |
|
|
Total |
Tsh 330,000 |
|
|
Debtors Account |
|
|
|
Koya |
|
Tsh 100,000 |
|
Yasr |
|
Tsh 230,000 |
|
Total |
|
Tsh 230,000 |
|
Being Bad Debt a
written off from asset account. |
||
JUNE
2022
|
Details |
Debit |
Credit |
|
Bad debt Account |
|
|
|
Wilawela |
Tsh 90,000 |
|
|
Mauga |
Tsh 570,000 |
|
|
Kituga |
Tsh 330,000 |
|
|
Total |
Tsh 990,000 |
|
|
Debtors Account |
|
|
|
Wilawela |
|
Tsh 90,000 |
|
Mauga |
|
Tsh 570,000 |
|
Kituga |
|
Tsh 330,000 |
|
Total |
|
Tsh 990,000 |
|
Being Bad debt a
written off from asset account |
||
JOURNAL ENTRY FOR POSTING BAD
DEBT TO INCOME STATEMENT
|
Details |
Debit |
Credit |
|
June 2021: |
|
|
|
Income statement |
Tsh 330,000 |
|
|
Bad debt account |
|
Tsh 330,000 |
|
June 2022 |
|
|
|
Income statement |
Tsh 990,000 |
|
|
Bad debt |
|
Tsh 990,000 |
BAD
DEBT RECOVER:
Question
two:
On
1 January 2009 kimtu sold goods on credit to Saida for Tsh 200,000.
At
21 June 2009 Kimtu know his customer a bankruptcy, kimtu decide to write off
the debt of Tsh 200,000. In the year 2010 saida pay all debt which owed by
kimtu.
Required:
1. 1.Show journal entry for this statement.
2. 2.Record to the book of accounts.
JOURNAL ENTRY
|
Details |
Debit |
Credit |
|
Debtors Accounts |
Tsh 200,000 |
|
|
Bad debt recovery
account |
|
Tsh 200,000 |
|
Being a bad debt
recovery a shown to debtors account. |
||
|
Details |
Debit |
Credit |
|
Bad debt recovery
account |
Tsh 200,000 |
|
|
Income statement |
|
Tsh 200,000 |
2.BOOKS
OF ACCOUNTS.
Debit Debtors account Credit
|
Bad
debt recovery Tsh 200,000 |
|
Debit Bad debt recovery account Credit
|
Income
statement Tsh 200,000 |
Debtors
Accounts Tsh 200,000 |
EXTRACT
INCOME STATEMENT FOR THE YEAR 31 DECEMBER 2010.
|
Details Bad
debt recovery Other
income Total
income |
Tsh 200,000 XXX XXX |
Tsh
XXX |