by
manaf almas , Auditor , DAR AL NUZUM PUBLIC ACCOUNTANTS
bad debts should be debited in current year profit & loss account , traial balance provision referes to provision for bad debts for this year and which is created previous year.new provision means provision for next year which have to make this year and deducted this amount from account receivables(debtors)in balance sheeet.If old provision amount is excess amount than actual bad debts then only deduct balance amount from debtors for making new provision
provision amount would be treated as liability in balancesheet under the head current liability and provision and debit profit and loss account
for eg; In case provision amount is1000 as per company policy
old provision1000
bad debts800
deductable amount from account receivables this year=new provision-(old provision-bad debts)1000-(1000-800)
=1000-200
=800
Accounts Receivable is reported in Balance Sheet at its net realizable value. This can be achieved by a contra account called provision for bad debts. The journal entry is debit to bad debt expense and credit to provision for bad debts. After time pass-by and when it is assured that you will never collect that receivable, then make permanent write-off by debit to provision for bad debts and credit to Accounts Receivable.