Help with provision for bad debt??

rachelrunshaw

Hi I hope someone can help me with this. I have a set of accounts that last year had a net bad debt provision posted on a reversing journal as follows:

Dr Bad Debts 585.92
Cr Prov'n for bad debts 585.92

This posting reversed once I did the year end transfer so I now have a credit balance in the bad debt expense account of my P&L.The debtor has now gone bankrupt, how do I treat this in this years accounts?

Thanks for any help

Cullen

I would debit the bad debt expense, thus reversing the earlier reversal and leaving a nil balance in the account and credit the debtors control account as well as the customers account.

rachelrunshaw

Thanks Cullen. I have since found out the debtor went bankrupt in this years accounting period so I will have to write off the debt in the P&L account won't I? I know I'm being a bit dim - I can't get my head round it!

Cullen

The bad debt was dealt with last year when you debited the Expense account and moved the debt to the provision. This was then reversed, leaving a credit in the expense account and taking it out of the provision.

This year we have to write it off completely, so again we have to debit the expense. This will leave the expense at nil as the bad debt was already taken out of the P&L last year. We now have to attend to the balance sheet so this is why we adjust the Debtors Control Account and the subsidiary account.

That is really all the accounting that you have to do.

rachelrunshaw

Thanks very much for your help Cullen, I was getting in a muddle with timing and VAT reclaims. Thanks again.

Cullen

Anytime Rachel, you are welcome.