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In case of a debt becoming bad and doubtful, the amount is credited to ___ ?
- a)Bad Debts A/c
- b)Creditors
- c)Debtors A/c
- d)Capital A/c.
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
In case of a debt becoming bad and doubtful, the amount is credited to...
In the case of a debt becoming bad and doubtful, the amount is typically credited to the Debtors A/c.
Here’s how it works:
- Debtors A/c: This account is credited to remove the amount of the bad debt from the books. It reflects the reduction in the amount receivable from debtors.
- Bad Debts A/c: This account is debited to recognize the expense associated with the bad debt.
- Creditors A/c and Capital A/c: These accounts are not affected by bad debts.
So, the correct answer is Debtors A/c.
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In case of a debt becoming bad and doubtful, the amount is credited to...
Debt becoming bad and doubtful is a common scenario in businesses where a debtor is unable to pay back the amount owed. In such cases, the amount is credited to the Debtors A/c. Here's why:
Reasons for Bad and Doubtful Debts:
There can be multiple reasons for a debt becoming bad and doubtful. Some of them are:
- The debtor may have become insolvent and unable to pay back
- The debtor may have gone out of business
- The debtor may have refused to pay back the amount
- The debtor may have passed away
Treatment of Bad and Doubtful Debts:
When a debt becomes bad and doubtful, it is considered as a loss for the business. Therefore, it needs to be written off from the books of accounts. The treatment of bad and doubtful debts is as follows:
- The amount owed by the debtor is no longer considered as an asset for the business
- The amount is credited to the Debtors A/c, which reduces the total amount owed by all the debtors
- The same amount is debited to the Profit and Loss A/c, which reflects the loss incurred by the business due to the bad debt
- If the bad debt is recovered at a later stage, it can be reversed by debiting the Debtors A/c and crediting the Profit and Loss A/c
Conclusion:
In conclusion, when a debt becomes bad and doubtful, the amount is credited to the Debtors A/c. This is done to reflect the loss incurred by the business due to the bad debt.
Reasons for Bad and Doubtful Debts:
There can be multiple reasons for a debt becoming bad and doubtful. Some of them are:
- The debtor may have become insolvent and unable to pay back
- The debtor may have gone out of business
- The debtor may have refused to pay back the amount
- The debtor may have passed away
Treatment of Bad and Doubtful Debts:
When a debt becomes bad and doubtful, it is considered as a loss for the business. Therefore, it needs to be written off from the books of accounts. The treatment of bad and doubtful debts is as follows:
- The amount owed by the debtor is no longer considered as an asset for the business
- The amount is credited to the Debtors A/c, which reduces the total amount owed by all the debtors
- The same amount is debited to the Profit and Loss A/c, which reflects the loss incurred by the business due to the bad debt
- If the bad debt is recovered at a later stage, it can be reversed by debiting the Debtors A/c and crediting the Profit and Loss A/c
Conclusion:
In conclusion, when a debt becomes bad and doubtful, the amount is credited to the Debtors A/c. This is done to reflect the loss incurred by the business due to the bad debt.
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