Accounting·Final accounts & financial statements · NSSCO 1.3
Bad debts & provision for doubtful debts
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Every business that sells on credit meets customers who don't pay. In this lesson we learn the three key terms — bad debts, provision for doubtful debts, and bad debts recovered — see why prudence and matching make us act, and then work every General Journal entry together, step by step, before finding each one its proper place in the financial statements.
What you'll learn in this lesson
By the end you should be able to (NSSCO Accounting 1.3):
- Explain the meaning of the terms bad debts, provision for doubtful debts and bad debts recovered
- State the need for credit control
- Explain the need to declare some debts as bad and to provide for doubtful debts (accrual/matching and prudence principles)
- Prepare the General Journal entries for writing off bad debts
- Record the recovery of bad debts
- Explain how the provision for doubtful debts is estimated (e.g. ageing of debts)
- Prepare the entries for creating provision for doubtful debts
- Prepare the entries for increasing and decreasing the provision for doubtful debts
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Ms Pieters and Mike talk through the whole topic — with the figure and working drawn live.