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1- Direct write-off method
Debit / Bad Debts Expense
credit / Accounts Receivable
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2- Allowance method
Debit / Bad Debts Expense
Credit / Allowance for Doubtful Accounts
then
Debit / Allowance for Doubtful Accounts
Credit / Accounts Receivable
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The adjustment entry at the time of provide the provision for bad debts
Dr. Bad Debts Expense
Cr. Provision for Bad Debts
at the time of write off of the
Dr. Provision for Bad Debts
Cr. A/R (Debtors)
There is nothing to do with future in bad debt accounting. bad debts are basically present trade debts which have been impaired and susceptible or unlikely to be recovered. So in accordance with prudence concept as per IAS1 and to be on the safer side companies make reasonable estimates about non recovery of trade debts and pass the following journal entry
Bad debt expense in profit and loss Dr
Provision for bad debts in statement of financial position Cr
When it is actually confirmed that a debt is irrecoverable in any case then company need to write of the same from its books of accounts by passing the following journal entry
Provision for bad debt in statement of financial position Dr.
Trade debts in statement of financial position Cr.
