Accounting (AS)·Bad debts & provision for doubtful debts · NSSCAS 2.1.3
Bad debts & bad debts recovered
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When a customer never pays, the business loses real money - and the books must say so. In this lesson you learn to tell bad debts, provision for doubtful debts and bad debts recovered apart, to write a debt off in the general ledger, and to show both the expense and the recovered income in the income statement. This adjustment appears again and again in Paper 1, both as ledger accounts and inside the income statement question.
What you'll learn in this lesson
By the end you should be able to (NSSCAS Accounting (AS) 2.1.3):
- distinguish between bad debts, provision for doubtful debts and bad debts recovered
- explain the need to record bad debts and provide for doubtful debts
- explain the application of the accrual/matching and prudence principles to bad debts and provision for doubtful debts
- record bad debts in the general ledger
- prepare an income statement including bad debts
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