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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
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