Question

journalize the following transaction:-

Kamal is declared insolvent, received 70paisa in a rupee from his official receiver on a debt of rupees 2000.

Plzz frndz,do help........

Answer 1

Amount owed by Kamal = 2000

Amount Recoverable= 0.70 paisa Per rupee..

Total amount Recovered= 2000 × 0.70 = 1400

Amount Irrecoverable = 2000 - 1400 = 600..so we call it as bad debts and we should write it off in the books of accounts..

This transaction affects three accounts... Kamal a/c (kamal owes us money) , Bad debts a/c (amount Irrecoverable should be mentioned in the books of accounts)..and Cash a/c (cash 1400 is being received from kamal . Kamal account is a Personal account and Bad debts account is a nominal account (all expenses losses Gains income come under it).. cash account is a Real account (all assets and Liabilities come under it)

The Three golden rules of accounting are

Personal account - Debit the receiver ,credit the giver

'Real' Account - Debit what comes in ,credit what goes out

Nominal account - Debit All expenses and losses, credit All incomes and gains

In contention with the above rules..

Kamal being the Giver should be credited and Bad debts being an expense and cash is coming in they should be debited..

So the Journal Entry will be...

cash a/c. Dr 1400

Bad debts a/c Dr 600

To kamal a/c 2000

(Being kamal account settled)