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In case of a debt becoming bad, the amount should be created to :
- a)Trade receivables account.
- b)Bad Debts Account
- c)Cash Account
- d)Sales Account
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
In case of a debt becoming bad, the amount should be created to :a)Tra...
When a debt becomes bad and doubtful the following entry is passed:
Bad Debts A/c Dr.
To Debtors A/c
( Being bad debts written off)
Bad Debts A/c Dr.
To Debtors A/c
( Being bad debts written off)
Most Upvoted Answer
In case of a debt becoming bad, the amount should be created to :a)Tra...
Debtors A/c
Debtors A/c is credited when a debt becomes bad and doubtful. Here's how it works:
Recognition of Bad Debt:
- When a debt is deemed uncollectible, it is recognized as a bad debt.
- At this point, the amount owed by the debtor is transferred from the Debtors A/c to the Bad Debts A/c.
Impact on Financial Statements:
- Crediting the Debtors A/c reduces the accounts receivable balance on the balance sheet.
- This adjustment reflects the true value of the company's assets, as it acknowledges that not all debts owed to the company will be collected.
Writing-off Process:
- Writing off a bad debt involves removing the amount from the company's accounts and acknowledging the loss.
- By crediting the Debtors A/c, the company recognizes the loss and adjusts its financial records accordingly.
Preventing Misrepresentation:
- Crediting the Debtors A/c ensures that the company's financial statements accurately reflect the reality of its outstanding debts.
- It prevents the misrepresentation of assets and helps stakeholders make informed decisions based on reliable information.
In conclusion, when a debt becomes bad and doubtful, the amount is credited to the Debtors A/c to recognize the loss and adjust the company's financial statements accordingly.
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In case of a debt becoming bad, the amount should be created to :a)Tra...
A trade receivable accounts
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In case of a debt becoming bad, the amount should be created to :a)Trade receivables account.b)Bad Debts Accountc)Cash Accountd)Sales AccountCorrect answer is option 'A'. Can you explain this answer?
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