To prepare the required accounts, you’ll need to calculate the bad debt expense for the year, update the Provision for Bad Debt Account, and then account for it In the Profit and Loss Account. Here’s how you can do it step by step:
(i) Bad Debts Account:
1. Opening Balance on April 1, 2021: Rs. 0 (Assuming there were no bad debts at the beginning of the year).
2. Bad Debt Expense for the year (March 31, 2022): Rs. 1,870 (as given).
3. Closing Balance on March 31, 2022: Rs. 1,870 (This is the total bad debt expense for the year).
(ii) Provision for Bad Debt Account:
1. Opening Balance on April 1, 2021: Rs. 2,500 (as given).
2. Calculate Provision for Bad Debt for the year: 5% of Debtors on March 31, 2022, which is 5% of Rs. 20,000 = Rs. 1,000.
3. Bad Debt written off during the year (Rs. 1,870 from (i)).
4. Closing Balance on March 31, 2022: Rs. 2,500 (Opening Balance) – Rs. 1,000 (Provision for the year) + Rs. 1,870 (Bad Debt written off) = Rs. 2,370.
(iii) Profit and Loss Account:
1. Calculate the net Bad Debt Expense for the year: Rs. 1,870 (from (i)). 2. Calculate the change in Provision for Bad Debt: Rs. 2,370 (from (ii)).
3. Net Bad Debt Expense for the year: Rs. 1,870 – Rs. 2,370 = -Rs. 500 (since it’s a loss, it will be debited in the Profit and Loss Account).
So, in the Profit and Loss Account, you would record a Bad Debt Expense of Rs. 500 as a debit entry. This represents the expense incurred due to bad debts during the year.
