Page 78 - DMGT403_ACCOUNTING_FOR_MANAGERS
P. 78

Unit 4: Final Accounts




                                                                                                Notes
            March 1,2006   Mohan A/c          Dr                       3,000
                         To Sales                                                3,000
                                    (Being the credit sales transacted)

          Dr                                Mohan  A/c                              Cr

              Date        Particulars              Date        Particulars
            March    To Sales               3,000         By Balance c/d         3,000
            1,2006
                                            3,000                                3,000
                     To Balance b/d         3,000

          On March  31, Mr. Mohan declared himself that is insolvent,  registered the inability of the
          customer respectively. From the above transaction, whatever the goods sold to Mohan cannot
          be recovered from the sales or deducted or adjusted. It means that the balance due of Mohan
          amounted   3,000 cannot be adjusted on the sales; instead, the following entry can be posted:

            March 31,2006   Bad debts A/c      Dr                      3,000
                         To Mohan                                                3,000
                                   (Being the bad debts are written off)

          The ultimate aim of the above entry is to close the account of the individual who is unable to
          make the payment of the overdue.
          Dr                                Mohan  A/c                              Cr

              Date        Particulars              Date        Particulars
            March     To Sales              3,000   March 31   By Bad debts      3,000
            1,2006
                                            3,000                                3,000

          System of preparing the final accounts (Accrual system of Accounting):
          9.   For Provision for Bad and Doubtful Debts

               Provision for Bad and Doubtful Debts: At the end of the year, after writing off the bad
               debts there maybe some customers from whom it is doubtful to recover the entire amount.
               However, it cant be written off as bad because non-recovery of such amount is not certain.
               But at the same time the balance in sundry debtors account should be brought down to its
               net realizable figure so that Balance Sheet may not exhibit the debtors at more than their
               actual realizable value. Therefore, to show the approximately correct value of the sundry
               debtors in the balance sheet a provision or reserve is created for possible bad debts.
                    (a)  When the provision is created:
                         Profit & Loss Account  Dr.
                                To Provision for Bad and Doubtful Debts Account

                         Such a provision is subtracted from the debtors in the assets side of Balance
                         Sheet and also shown in the debt side of Profit and Loss Account.
                    (b)  When Bad Debts are written off against the Provision for Bad and Doubtful Debts:

                         Provision for Bad and Doubtful Debts Account  Dr.
                                To Bad Debts Account




                                           LOVELY PROFESSIONAL UNIVERSITY                                   73
   73   74   75   76   77   78   79   80   81   82   83