In the situation that a debtor becomes unable to pay and the amount has not been anticipated through a provision for doubtful debts,what is the entry to record the bad debt?
A) Dr Debtors; Cr Provision for doubtful debts
B) Dr Provision for doubtful debts; Cr Debtors
C) Dr Bad debts expense; Cr Cash
D) Dr Bad debts expense; Cr Debtors

Question

Quizplus · Accepted Answer

When a debtor becomes unable to pay and the amount has not been anticipated through a provision for doubtful debts, the entry to record the bad debt is to debit Bad debts expense and credit Debtors. This writes off the amount owed by the debtor and reduces the accounts receivable balance on the balance sheet. Option A is incorrect as provision for doubtful debts is created before the bad debt and is already factored into the accounts. Option B is incorrect as the provision for doubtful debts is not reversed if there is an actual bad debt. Option C is incorrect as cash is not involved in this transaction.

In the Situation That a Debtor Becomes Unable to Pay