निम्न जानकारी दिएका छन् (Following information are provided): शुरुको शंकास्पद आसामी जगेडा (Opening provision for bad debts) Rs. 5,000. नउठ्ने आसामी (Bad debts) Rs. 2,000. वर्षको अन्तमा आसामी…

Provision for Bad Debts Account (Solution)

Step 1: Understand the Given Information

• Opening Provision for Bad Debts (Debit Balance): Rs. 5,000 (This is a liability account with a debit balance, meaning it was previously under-provided.)
• Bad Debts (Direct Loss): Rs. 2,000 (These are debts that cannot be recovered and must be written off.)
• Closing Debtors (Receivables): Rs. 60,000 (This is the amount owed by customers at year-end.)
• Required Provision Rate: 10% of closing debtors (New provision needed = 10% of Rs. 60,000 = Rs. 6,000)

Step 2: Calculate the Required Provision at Year-End

The provision for bad debts must be maintained at 10% of closing debtors: $$\text{Required Provision}=10\%\times 60,000=\text{Rs. }6,000$$

Step 3: Determine the Adjusting Entry

• The opening provision was Rs. 5,000 (debit balance).
• Bad debts written off reduce the provision balance by Rs. 2,000.
• The new provision required is Rs. 6,000.

Adjustment Needed: $$\text{New Provision}-(\text{Opening Provision}-\text{Bad Debts})=6,000-(5,000-2,000)=\text{Rs. }3,000\text{ (additional provision required)}$$ However, since the opening provision was under-provided (debit balance), we must first reverse the debit balance before applying the new provision.

Step 4: Journal Entries

1. Write-off Bad Debts (Direct Loss):

   Bad Debts A/c       Dr. 2,000
   Provision for Bad Debts A/c Cr. 2,000
   

   (This removes the bad debts from the provision account.)

2. Adjust the Provision to the Required Level:

   • The new provision needed is Rs. 6,000.
   • After writing off Rs. 2,000, the remaining provision balance is: $$5,000-2,000=\text{Rs. }3,000$$
   • To reach Rs. 6,000, an additional Rs. 3,000 must be charged to the Income Statement (Profit & Loss A/c).

   Provision for Bad Debts A/c       Dr. 3,000
   Income Statement (Profit & Loss A/c) Cr. 3,000
   

   (This increases the provision balance to Rs. 6,000.)

Step 5: Final Provision for Bad Debts Account

The T-account for the Provision for Bad Debts will look like this:

(Note: The closing balance is Rs. 6,000, which matches the required provision of 10% of Rs. 60,000.)

Step 6: Explanation of the Final Balance

• The opening provision (Rs. 5,000) was under-provided (debit balance).
• Bad debts (Rs. 2,000) were written off, reducing the provision to Rs. 3,000.
• An additional Rs. 3,000 was charged to Profit & Loss A/c to bring the provision up to Rs. 6,000 (10% of Rs. 60,000).

Final Answer (T-Account Format)

Key Takeaways:

• The opening provision was insufficient (Rs. 5,000 < Rs. 6,000).
• Bad debts reduced the provision to Rs. 3,000.
• An additional Rs. 3,000 was charged to P&L to meet the 10% requirement.
• The final provision balance is Rs. 6,000 (credit side).