Dheeraj In: Category - ExpenseHow to do bad debts adjustment in final accounts?adjustmentbad debtsfinal accounts ShareFacebook1 AnswerVotedRecent Palak 2020-08-23T11:56:46+05:30Added an answer on August 23, 2020 at 11:56 am This answer was edited. Adjustment in final accountsAdjustment of bad debts is often a tedious task for the students which ultimately leads to an error and false representation of the financial position of the business. They are adjusted in two ways depending on their record in the books of accounts, which is as follows:1. Treatment of bad debts before preparation of trial balanceAs a debtor fails to pay the due amount his account is credited and closed as well as a new account is opened known as the Bad debts account.In the trial balance: The net amount of bad debts incurred during the financial period and the Sundry debtors excluding the amount of bad debts appear as a separate item in the Trial balance on the debit side.In the Income statement or the Profit and loss a/c:Bad debts being an expense are recorded under operating expenses in the income statement or on the debit side of the Profit and loss a/c.Journal entries for adjustment of bad debts:Bad debts a/cDebitTo Sundry debtors a/cCredit(being bad debts written off)Profit and loss a/cDebitTo Bad debts a/cCredit(being bad debts transferred to p/l a/c)2. Treatment of bad debts after the preparation of trial balanceSometimes the amount of bad debts may be mentioned as an adjustment item outside the Trial balance. These types of debts are often referred to as further bad debts and have not yet been written off. To provide a true financial position of the company it is necessary to include these bad debts while preparing the Final accounts.In the profit and loss a/c:They are added to the already written off bad debts and appear on the debit side of the profit and loss a/c.In the balance sheet:They are deducted from the adjusted sundry debtors on the asset side of the balance sheet.Journal entry for adjustment of further bad debts:Bad debts a/cDebitTo Sundry debtors a/cCredit(being bad debts written off)Example:The extract of the trial balance of XYZ Ltd. is as follows:PARTICULARSDEBITCREDITSundry debtors50,000 Bad debts8,000 XYZ Ltd. sells goods to a retailer at 50 days credit. However, after 50 days, the company realizes that the retailer has been declared insolvent and only an amount of 4,000 will be received against the total amount of 8,000. The adjustment in the final accounts is as follows:Bad debts a/cDebit4,000Debit all expenses and lossesTo Retailers a/cCredit4,000Credit the giver(being amount irrecoverable from the retailer)Extract of Profit and loss a/cPARTICULARSAMOUNTPARTICULARSAMOUNTTo Bad debts a/c 8,000 (+) further bad debts 4,00012,000 Extract of balance sheetLiabilitiesAmountAssetsAmountSundry debtors 50,000 (-) Further bad debts 4,00046,000Hope this helps.0Reply Share ShareShare on FacebookShare on TwitterShare on LinkedInShare on WhatsAppLeave an answerCancel replyYou must login to add an answer. Username or email* Password* Captcha* Click on image to update the captcha. Remember Me! Forgot Password?