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

Iyer Stores has debtors of Rs 80,000 before adjustments. Bad debts of Rs 5,000 are to be written off, and Rs 1,200 of bad debts recovered was received earlier in the year and already credited to Bad Debts Recovered A/c. Ignoring any provision, what are the debtors to be shown in the Balance Sheet, and what is the net charge to Profit and Loss for bad debts?

Debtors are Rs 75,000 and the net charge to Profit and Loss is Rs 3,800. Writing off Rs 5,000 reduces debtors from Rs 80,000, while the Rs 1,200 recovered is income that offsets the bad debts expense, giving 5,000 minus 1,200.

  1. ADebtors Rs 75,000; net charge Rs 3,800Correct
  2. BDebtors Rs 75,000; net charge Rs 6,200
  3. CDebtors Rs 80,000; net charge Rs 3,800
  4. DDebtors Rs 73,800; net charge Rs 5,000

Explanation

Debtors = 80,000 - 5,000 = 75,000. The recovery is a separate income and does not change debtors. Net charge = 5,000 - 1,200 = 3,800. Option B adds the recovery instead of deducting it.

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