Dr: Bad debt xx

Cr: Debtors xx

Bad debt :

Bad debts:

Net profit will decrease as expense increases. Net debtordecreases as there is a decrease of the amount of debts thatare unrecoverable.

Effect of bad debts, recovery of bad debts and provision ondoubtful debts on net profit and net debtors in the BalanceSheet:

The allowance for doubtful debt reduces the recievablebalance to the amount that the entity prudently estimatesto recover in the future.

Why do we need to have provision fordoubtful debt?

Bad debt is an account receivable that has been clearlyidentified as not being collectible. Doubtful debt is an accountreceivable that might become a bad debt at some point in thefuture.

Difference between bad debts anddoubtful debts:

Fraud

Trade dispute

Cr: Balance sheet xx

Doubtful debt:

Dr: Doubtful debt xx

Customers going bankrupt

Reasons for incurring bad debts: