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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Treatment of Bad Debts and Provision for Doubtful Debts

Debtors of Kapoor Stores before adjustments were Rs 80,000 and the trial balance showed bad debts of Rs 1,500. Further bad debts of Rs 3,000 are to be written off. Also, Rs 700 of the bad debts written off earlier was recovered and not yet recorded. What is the total charge to Profit and Loss for bad debts, net of recovery (ignoring provisions)?

The net charge is Rs 3,800. Bad debts total Rs 4,500 (Rs 1,500 existing plus Rs 3,000 additional), and the Rs 700 recovered is a gain that is set against it, giving Rs 4,500 minus Rs 700, which equals Rs 3,800.

  1. ARs 3,800Correct
  2. BRs 3,000
  3. CRs 5,200
  4. DRs 4,500

Explanation

Total bad debts = 1,500 + 3,000 = 4,500. Recovery of 700 is income, so net charge = 4,500 - 700 = 3,800. Rs 5,200 wrongly adds the recovery, and Rs 4,500 ignores it.

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