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August 24, 2007

What is the provision for bad debts?

The provision for bad debts might refer to the balance sheet account also known as the Allowance for Bad Debts, Allowance for Doubtful Accounts, or Allowance for Uncollectible Accounts. In this case Provision for Bad Debts is a contra asset account (an asset account with a credit balance). It is used along with the account Accounts Receivable in order to report the net realizable value of the accounts receivable.

Provision for Bad Debts might also be an the income statement account also known as Bad Debt Expense or Uncollectible Account Expense. In this situation, the Provision for Bad Debts reports the credit losses that pertain to the period shown on the income statement.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.



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Comments

38 Responses to “What is the provision for bad debts?”

  1. Shelly on March 11th, 2008 12:38 pm

    Very helpful…but should have examples

  2. sampath kumar on March 28th, 2008 3:43 am

    whsat is the Journal Entry for Bad debts and Provision for Doubtful Debts. Show separately.-

  3. Tanzeem on May 7th, 2008 2:33 pm

    Please explain me depreciation in details with journal entries.and bad debts provision

  4. Rogers James Lutwama on May 12th, 2008 9:22 am

    This is very useful for my daily work. Thanks a lot.

  5. gayu on July 31st, 2008 1:36 am

    please explain 3 methods of bad and doubtful provision

  6. bianca on August 11th, 2008 12:53 am

    goo dbut should include a revision kit

  7. Robert on September 11th, 2008 7:44 am

    Provisions are debit in the P & L initially and adjusted there after for increases or decreases.Now, what happens to the funds in that account?

  8. Elaine on September 16th, 2008 10:55 pm

    What is the difference between provision for bad debts & bad debts written off? Is it same?

  9. sandip on October 16th, 2008 4:08 am

    Provision for bad debts is like a reserve created for any specific purpose i.e.,Bad debt.It shows himself as expenses but its a fund created to adjust the bad debts.when the Provision is created then the entry is Profit & Loss A/c - - - - - Dr.
    To Provision for Bad Debts.

    And when bad Debt is actually happen then it is adjusted with the Provision for Bad Debt Accounts & the entry is

    Provision for Bad Debts - - - - - - Dr.
    To bad debt A/c

  10. chmero on October 17th, 2008 2:30 pm

    I an allownace for doubtful accounts a contra-asset or a liability?

  11. Loquif on November 11th, 2008 9:34 am

    Clear and simple! just what I wanted, thanks!

  12. bhavani on December 23rd, 2008 8:12 am

    is that provision will reverse in the next month?

  13. Mahender on January 22nd, 2009 11:26 am

    Why should we deduct in balancesheet from Debtors, why not directly credited to Debtors A/c. Can anybody help on this ?

  14. Yawar Masood on February 14th, 2009 7:13 am

    what if there was a provision already made int he previous year and and then the questions asks to calculate the proviosion for this year

  15. carmen on February 22nd, 2009 5:31 am

    can you speak chinese

  16. Hamza on February 23rd, 2009 1:20 am

    brilliant i have learnt a lot

  17. moh on February 28th, 2009 4:32 am

    hi
    the question is i wanna close the year 2008 do i have to take provisions for 2009 or 2008 i mean for the accounts of 08 or 09
    thanks in advnace

  18. dahiru on March 4th, 2009 8:00 am

    thanks alot.your qs are very clear and direct this is the most educating site i ever know
    dahiru from nigeria

  19. Md khalid on March 22nd, 2009 2:07 pm

    I was made provision for bad debt rs 5000
    But actual bad debt in 7000 so u will reply me quick how to setoff

  20. nisha on March 30th, 2009 7:36 am

    there is no entries in this context so please show the journal entry for provision. only explainations are there

  21. Pinky on April 7th, 2009 7:59 am

    Please give me an example provision bad debts shown on balance sheet and income statement. Thanks.

  22. Giles on April 7th, 2009 8:27 pm

    Provisision for bad debt is a simple concept.

    If you have debts which you deem to be bad or doubtful (meaning that these debts will not be repaid, in all likelihood), you can create what is known as a provision.
    A provision is a charge to the profit and loss account (debit, profit and loss) and is a liability (credit) on the balance sheet.
    Dr : P&L account (bad debts)
    Cr : Bal Sheet (provision for bad debts)

    When the debt is actually written off on the debtor account - the enry is debit sales (profit and loss) and credit debtor account.
    To compensate for that write off, you can then release the same amount from the provision (for bad debt) by : debit provision for bad debts (bal sheet) , credit bad debt
    (P&L).

  23. Venuszz on April 9th, 2009 9:19 pm

    Why does a business create a provision for doubtful debts?

  24. David on April 24th, 2009 2:05 am

    this is more than amazing as it pertains accouting for provision for bad debt.

  25. raihan on April 25th, 2009 5:08 am

    i M vERy HAppy to SeE your WEbsitE. i ThInk, thiS wEBsitE CAn sOlVe the accOuNtinG probLEm.

  26. Spencer on July 10th, 2009 4:56 am

    guys contact with me plz.here is my email add. S.nicholaus@yahoo.com

  27. Ashish on September 9th, 2009 8:39 am

    bad debt is created when debtors are not able to pay dues on time there are three methods of creating bad debt provisions.

    note : earlier accountants were also not sure about bad debs . in America the accountants have adjusted bad debt
    it means bd and bdr . BD is debited to p&l
    while BDR is deducted frm sundry debtors and added to bd . due to uncertainity of dbtors payment provision should be made by each firm . depending upon the seize of business . few companies have fixed certain percentage of sales as a bad debt provision . bad dept provision can be adusted by opting real debt of company

  28. mira on September 9th, 2009 12:28 pm

    Can you tell me the different for book write-off and physical write-off for bad debt?

  29. sadaqat Ali on September 12th, 2009 3:19 am

    Sir,
    This is outsanding site chemendus and very helpful for those students who little bit intouch in accounting but they are not clear. Now with this site they solve the problem just one click and they will give the right result with in few sentences.

    thanks blog.accountingcoach

    Sadaqat Ali
    Finance Manager

  30. Jennie on September 24th, 2009 12:51 pm

    If the aging was off, where would one look to correct the problem?

  31. chanty on October 7th, 2009 9:23 am

    lo people not helping

  32. khusboo on October 8th, 2009 9:44 pm

    wheres the example????

  33. PHILIP EZIASHI on December 9th, 2009 5:24 am

    What are the component of tier II capital?

  34. CHUKWUKA E. on December 23rd, 2009 6:59 am

    Can someone please take out time to show the accounting entries for bad and doubtful debts, I mean their journal entries and save us the time of reading through much vabiage.

    I think this site is a wonderful site.

  35. ACoach on December 23rd, 2009 7:48 am

    See the Explanation of Accounts Receivable and Bad Debts Expense on AccountingCoach.com.

  36. Usman ali tanko on January 8th, 2010 4:30 am

    What are the difference between provision for bad debt and doubtful debt

  37. tgdl on February 3rd, 2010 9:44 pm

    Should a provision for doubtful accounts be provided for current acccount?

  38. A dof in training on February 16th, 2010 11:37 am

    We wrote off debt on an enterprise business and now we are selling some assets. How do we record the revenue back to our tribe?

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