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CMA Foundation · Fundamentals of Financial and Cost Accounting · Adjustment Entries and Rectification of Errors

Before closing the books of Sharma Traders, a debtor Mr. Verma, owing Rs 8,000, is declared insolvent and the amount is to be written off as bad debt. Which journal entry is correct?

The correct entry debits Bad Debts Account and credits the debtor Mr. Verma for Rs 8,000. The loss is recognised as an expense, and the receivable is removed from the books. Reversing the entry would wrongly increase the debtor and show a gain.

  1. ABad Debts A/c Dr 8,000 to Mr. Verma A/c 8,000Correct
  2. BMr. Verma A/c Dr 8,000 to Bad Debts A/c 8,000
  3. CProvision for Doubtful Debts A/c Dr 8,000 to Bad Debts A/c 8,000
  4. DBad Debts A/c Dr 8,000 to Sales A/c 8,000

Explanation

Writing off a bad debt is a loss, so Bad Debts A/c is debited, and the debtor's personal account is credited to remove the receivable. Option B reverses this and would increase the debtor balance.

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