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

Kapoor Enterprises' trial balance shows Sundry Debtors Rs 1,50,000 and Bad Debts Rs 6,000. Adjustment: further bad debts of Rs 4,000 are to be written off, and a debt of Rs 3,000 written off in the previous year was recovered in cash, not yet recorded. Which amount will be debited to Profit and Loss A/c as net bad debts, and what will be the closing debtors?

Net bad debts charged are Rs 7,000 and closing debtors are Rs 1,46,000. Bad debts total Rs 10,000 (6,000 plus 4,000), less Rs 3,000 recovered. Debtors fall only by the Rs 4,000 new write-off, because the recovery relates to an account already closed.

  1. ANet bad debts Rs 7,000; closing debtors Rs 1,46,000Correct
  2. BNet bad debts Rs 10,000; closing debtors Rs 1,46,000
  3. CNet bad debts Rs 7,000; closing debtors Rs 1,43,000
  4. DNet bad debts Rs 13,000; closing debtors Rs 1,50,000

Explanation

Total bad debts = 6,000 + 4,000 = 10,000. The recovery of 3,000 is credited to Bad Debts Recovered, giving net 7,000. Debtors = 1,50,000 - 4,000 = 1,46,000, since the recovery was from a closed account and does not affect debtors. Option C wrongly deducts the recovery from debtors.

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