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A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?
- a)Debit Bad Debts Account, Credit Debtors Account
- b)Debit Debtors Account, Credit Bad Debts Account
- c)Debit Profit and Loss Account, Credit Bad Debts Account
- d)Debit Bad Debts Account, Credit Profit and Loss Account
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
A company's bad debts amount to $17,000. If this is written off as an ...
The journal entry to write off bad debts is to debit the Bad Debts Account and credit the Debtors Account, reflecting the loss and reducing the accounts receivable.
Journal Entry: Debit Bad Debts Account $17,000, Credit Debtors Account $17,000
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Journal Entry: Debit Bad Debts Account $17,000, Credit Debtors Account $17,000
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A company's bad debts amount to $17,000. If this is written off as an ...
Understanding Bad Debts Write-Off
When a company recognizes that certain debts are unlikely to be collected, it needs to write off those bad debts as an expense. This process affects the financial statements by reducing both assets (Accounts Receivable) and net income.
Journal Entry Explanation
The correct journal entry for writing off bad debts of $17,000 is:
- Debit Bad Debts Account: $17,000
- Credit Debtors Account: $17,000
This entry reflects the following:
1. Debit Bad Debts Account
- This action increases the Bad Debts Expense, which is an income statement account.
- It represents the cost to the company due to uncollectible accounts, reducing net income for the period.
2. Credit Debtors Account
- This action decreases the Debtors (Accounts Receivable) account on the balance sheet.
- It reflects the fact that the company will not receive payment for these debts, effectively reducing total assets.
Why Option A is Correct?
- Option A accurately captures the essence of the transaction: recognizing the expense while simultaneously reducing the asset.
- It follows the double-entry accounting principle, ensuring the accounting equation (Assets = Liabilities + Equity) remains balanced.
Reasons Other Options are Incorrect
- Option B: Incorrect because it suggests debiting Debtors and crediting Bad Debts, which does not accurately reflect the write-off process.
- Option C: Incorrect as it implies debiting Profit and Loss Account, which does not directly relate to the debt write-off.
- Option D: Incorrect since it suggests crediting Profit and Loss Account instead of the Debtors account.
This write-off process is essential for maintaining the accuracy of financial statements, ensuring that they depict a true financial position of the company.
When a company recognizes that certain debts are unlikely to be collected, it needs to write off those bad debts as an expense. This process affects the financial statements by reducing both assets (Accounts Receivable) and net income.
Journal Entry Explanation
The correct journal entry for writing off bad debts of $17,000 is:
- Debit Bad Debts Account: $17,000
- Credit Debtors Account: $17,000
This entry reflects the following:
1. Debit Bad Debts Account
- This action increases the Bad Debts Expense, which is an income statement account.
- It represents the cost to the company due to uncollectible accounts, reducing net income for the period.
2. Credit Debtors Account
- This action decreases the Debtors (Accounts Receivable) account on the balance sheet.
- It reflects the fact that the company will not receive payment for these debts, effectively reducing total assets.
Why Option A is Correct?
- Option A accurately captures the essence of the transaction: recognizing the expense while simultaneously reducing the asset.
- It follows the double-entry accounting principle, ensuring the accounting equation (Assets = Liabilities + Equity) remains balanced.
Reasons Other Options are Incorrect
- Option B: Incorrect because it suggests debiting Debtors and crediting Bad Debts, which does not accurately reflect the write-off process.
- Option C: Incorrect as it implies debiting Profit and Loss Account, which does not directly relate to the debt write-off.
- Option D: Incorrect since it suggests crediting Profit and Loss Account instead of the Debtors account.
This write-off process is essential for maintaining the accuracy of financial statements, ensuring that they depict a true financial position of the company.
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A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?a)Debit Bad Debts Account, Credit Debtors Accountb)Debit Debtors Account, Credit Bad Debts Accountc)Debit Profit and Loss Account, Credit Bad Debts Accountd)Debit Bad Debts Account, Credit Profit and Loss AccountCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?a)Debit Bad Debts Account, Credit Debtors Accountb)Debit Debtors Account, Credit Bad Debts Accountc)Debit Profit and Loss Account, Credit Bad Debts Accountd)Debit Bad Debts Account, Credit Profit and Loss AccountCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?a)Debit Bad Debts Account, Credit Debtors Accountb)Debit Debtors Account, Credit Bad Debts Accountc)Debit Profit and Loss Account, Credit Bad Debts Accountd)Debit Bad Debts Account, Credit Profit and Loss AccountCorrect answer is option 'A'. Can you explain this answer?.
A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?a)Debit Bad Debts Account, Credit Debtors Accountb)Debit Debtors Account, Credit Bad Debts Accountc)Debit Profit and Loss Account, Credit Bad Debts Accountd)Debit Bad Debts Account, Credit Profit and Loss AccountCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?a)Debit Bad Debts Account, Credit Debtors Accountb)Debit Debtors Account, Credit Bad Debts Accountc)Debit Profit and Loss Account, Credit Bad Debts Accountd)Debit Bad Debts Account, Credit Profit and Loss AccountCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?a)Debit Bad Debts Account, Credit Debtors Accountb)Debit Debtors Account, Credit Bad Debts Accountc)Debit Profit and Loss Account, Credit Bad Debts Accountd)Debit Bad Debts Account, Credit Profit and Loss AccountCorrect answer is option 'A'. Can you explain this answer?.
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A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?a)Debit Bad Debts Account, Credit Debtors Accountb)Debit Debtors Account, Credit Bad Debts Accountc)Debit Profit and Loss Account, Credit Bad Debts Accountd)Debit Bad Debts Account, Credit Profit and Loss AccountCorrect answer is option 'A'. Can you explain this answer?, a detailed solution for A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?a)Debit Bad Debts Account, Credit Debtors Accountb)Debit Debtors Account, Credit Bad Debts Accountc)Debit Profit and Loss Account, Credit Bad Debts Accountd)Debit Bad Debts Account, Credit Profit and Loss AccountCorrect answer is option 'A'. Can you explain this answer? has been provided alongside types of A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?a)Debit Bad Debts Account, Credit Debtors Accountb)Debit Debtors Account, Credit Bad Debts Accountc)Debit Profit and Loss Account, Credit Bad Debts Accountd)Debit Bad Debts Account, Credit Profit and Loss AccountCorrect answer is option 'A'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice A company's bad debts amount to $17,000. If this is written off as an expense, what is the journal entry?a)Debit Bad Debts Account, Credit Debtors Accountb)Debit Debtors Account, Credit Bad Debts Accountc)Debit Profit and Loss Account, Credit Bad Debts Accountd)Debit Bad Debts Account, Credit Profit and Loss AccountCorrect answer is option 'A'. Can you explain this answer? tests, examples and also practice CA Foundation tests.
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