Journal entry of Bad debts and Bad debts recovers in Accounting

Bad debts

When we sold goods on credit and the receiver of goods in future disagree to pay the money of goods he purchases then the party whom we sell goods become bad debts in books of accounts 

Now we can understand it with examples

Suppose we sold goods worth Rs. 120,000 to Mahesh.

The journal entry of the same will be in the books of accounts will be

Note : The goods are sold to Mahesh on credit.

Now after few days we approaches Mahesh and asked for cash .

Mahesh become insolvent and 40 paise in a rupee recover from his estate .

This means in 1 rupee there are 100 paisa if Mahesh paid us 40paisa therefore

 40/100 X 120,000 = 30,000 only and 90,000 becomes bad debts.

Bad debts are money unrecovered from Debtors who deny to pay money for any reason it can be he becomes insolvent or his tendency to not to  pay or any other reason .

Bad debts is loss in the books of accounts and nominal by nature therefore it is debited in the books of accounts as per rule of nominal accounts debit all expenses and losses .

The journal entry of the above entry will be:

Bad is loss and shown in the Debit side of Profit and loss accounts therefore it reduces the profit of the firm.

Dr                                           Cr.

As bad debts are only loss therefore it can not be transfer to balance sheet.