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

Kapoor Enterprises has debtors of Rs 80,000 before any adjustment. The trial balance shows Bad Debts of Rs 3,000. Further bad debts of Rs 5,000 are to be written off, and Rs 1,200 was received for a debt written off in an earlier year (not yet recorded). What is the total amount to be debited to Profit and Loss for bad debts, net of recovery, assuming no provision is made?

The net charge to Profit and Loss is Rs 6,800. Total bad debts are Rs 3,000 plus Rs 5,000, which equals Rs 8,000, and the Rs 1,200 recovered from an earlier write-off is income that reduces the net charge.

  1. ARs 8,000
  2. BRs 6,800Correct
  3. CRs 5,000
  4. DRs 9,200

Explanation

Total bad debts = 3,000 + 5,000 = 8,000. Recovery of Rs 1,200 is credited as income, so net charge = 8,000 - 1,200 = 6,800. Rs 8,000 ignores the recovery, and Rs 9,200 adds it by mistake.

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