Bad Debts

Question 1

Define bad debt

Answer 1

An irrecoverable debt is an amount owing to a business which will not be paid
Debit: Bad debt - Expense in Income Statement
Credit: Debtor’s name

Question 2

Define bad debts recovered

Answer 2

A debt previously written off is now paid
Debit: Bank
Credit: Bad debts recovered - Income in Income statement

Question 3

How to reduce bad debt?

Answer 3

Have a strict credit control policy:
Send out regular statements
Change interest on overdue accounts
Do not supply further goods on credit until account is paid

Question 4

How is the amount for provision for doubtful debts established?

Answer 4

Looking at the individual debtors’ accounts
Estimating on past experience
Considering the length of time debts have been outstanding