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Hello ,
Could some one please explain me the following example
At the begining of the financial year bank has balance on:
– Allowance for bad debts acc in balance sheet – CR 100$
– Then it decides to increase it by 20$ – DR Income statement 20 $ CR Allowance for BD 20$.
– What if during the perion it appears that part of the provision (e.g. 40$) is not needed as loan recovered , how to deal with the balance on Allowances account-provisions? can we just make DR 40$ allowance acc and CR Income statement?Thank you in advance
The problem lies in the second line of your post!
The Allowance for Doubtful Debts is probably one of the easier accounts to deal with as a year-end adjustment.
Look at the balance brought forward, calculate the amount you want to carry forward, put those amounts in the Allowance for DD Account.
Balance off that account and take the “missing” figure to the Bad Debts Account.
Balance off the Bad Debts Account and take the “missing” figure to the Statement of Income
Your problem is in the two lines “– Then it decides to increase it by 20$” together with “-What if during the perion it appears that part of the provision (e.g. 40$) is not needed as loan recovered”
That line referring to the recovered amount previously provided is automatically dealt with in the step “calculate the amount you want to carry forward,”. In that calculation of the amount to carry forward, the $40 previously provided will now be ignored, so there’s no actual entry to be effected
Also, the line “calculate the amount …..” deals with the decision to increase the provision by $20
Is that OK?
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