amount owing to a business which will not be paid by the debts DR bad debts (EXPENSE) and CR debtor = application of prudence
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bad debts recovered
when a debtor pays some or all of the amount AFTER the amount was written off DR cash/ bank CR bad debts recovered (not debtors because the account doesn't exist anymore)
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how to reduce the possibility of bad debts?
- proper credit control policy by: 1. change interest on overdue accounts 2. send monthly statements 3. don't allow further credit sales until a payment is made 4. set a credit limit
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provision for doubtful debts
is an estimate of the amount which a business will lose in a financial year because of bad debt
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how to create a pfdd account
DR income statement and CR provision for doubtful debts (in balance sheet= under debtors and you 'less' it)
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how to adjust a provision for doubtful debts
increase amount? therefore an expense = DR income statement and CR pfdd// decrease amount? therefore a income = DR pfdd and CR income statement
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Other cards in this set
Card 2
Front
when a debtor pays some or all of the amount AFTER the amount was written off DR cash/ bank CR bad debts recovered (not debtors because the account doesn't exist anymore)
Back
bad debts recovered
Card 3
Front
- proper credit control policy by: 1. change interest on overdue accounts 2. send monthly statements 3. don't allow further credit sales until a payment is made 4. set a credit limit
Back
Card 4
Front
is an estimate of the amount which a business will lose in a financial year because of bad debt
Back
Card 5
Front
DR income statement and CR provision for doubtful debts (in balance sheet= under debtors and you 'less' it)
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