In the situation that a debtor becomes unable to pay and the amount has not been anticipated through an provision for doubtful debts,what is the entry to record the bad debt?
A) Dr Debtors; Cr Provision for doubtful debts.
B) Dr Provision for doubtful debts; Cr Debtors.
C) Dr Bad debts expense; Cr Cash.
D) Dr Bad debts expense; Cr Debtors.
E) None of the given answers.

Question

Quizplus · Accepted Answer

Recording the bad debt expense and reducing the Debtors account is the appropriate treatment according to the matching principle. Choice A is incorrect because the provision for doubtful debts is a contra-asset account used to estimate the potential losses from bad debts, but it should not be affected after the debtor defaulted. Choice B is incorrect because it would overestimate the provision for doubtful debts, which has already been made before the debtor defaulted. Choice C is incorrect because the company did not receive any cash from the bad debt. Choice E is incorrect because there is a need to record the bad debt expense despite no provision for doubtful debts being made previously.

In the Situation That a Debtor Becomes Unable to Pay