By Roy on June 16, 2010
Bad debt is an item of expense shown in the income statement.
You can see the “T” account (Bad debt) in the article (Allowance for doubtful debt):
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By Roy on June 15, 2010
A doubtful debt is an amount owing to the business concerning which there is some doubt as to its collectability.
A doubtful debt is one about which there is some cause for concern but which is not yet definitely irrecoverable. Therefore, although it is prudent immediately to recognise the possible expense of not collecting the debt in the income statement, it would also be wise to keep the original debt in the accounts in case the debtor does in fact pay up.
The double entry of doubtful debt is:
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By Roy on June 15, 2010
If a business is faced with a situation where it is highly unlikely that the amount owing by a customer will be received, then the debt is known as a bad debt. So a bad debt is a debt which is uncollectable.
If a debt is considered to be uncollectable then it would be prudent to remove it totally from the accounts and to charge the amount as an expense to the income statement. The original sale remains in the accounts as this did actually take place. The debt is removed as it is considered that the debt will never be paid and an expense is charged to the income statement for bad debts.
The bad debt in accounting shows the double entry:
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By Roy on June 15, 2010
When a sale is made, it might be a sale for cash or it might be a sale on credit. If the sale is on credit terms then the customer will probably take the goods with him or arrange to have them delivered but he will not pay for the goods at that time. Instead, the customer will be given or sent an invoice detailing the goods and their price and the normal payment terms. This will tell the customer when he is expected to pay for those goods.
Under the accruals concept, a sale is included in the ledger accounts at the time that it is made. For a sale on credit, the sale is made at the time that the invoice is sent to the customer and therefore the accounting entries are made at that time as follows:
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By Roy on June 14, 2010
Perhaps you need more than 15 mins to read the income statement example and master it.
Income statement reflects the operational results of the company over a period of time. It matches the income and the expenditure in the same period, and you can count the net profit in the period.
Income statement example (by function):
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By Roy on June 14, 2010
Perhaps you need more than 15 mins to read the balance sheet example and master it.
The balance sheet shows the financial situation of a company at a point in time (the balance sheet date). Balance sheet shows the economic resources controlled by the company, existing obligations and the net assets of the
required right of the owners, reflecting the economic resources controlled by the company and the assets for redeem the debt in the future.
A balance sheet must always satisfy the basic equation:
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By Roy on June 14, 2010
An enterprise should make full disclosures relating to share capital on the face of balance sheet or in the notes.
For each class of share capital:
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By Roy on June 13, 2010
We know the meaning of revenue: revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of the enterprise. According to the accrual, before being recognised and reported, revenue must be earned and realised, and it must be capable of being verifiably measeured.
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By Roy on June 13, 2010
The difference between ordinary and preference shares has three aspects:
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