Question

Shyam became insolvent a first and final c o m p e n s a t i o n of 75 paise in a Rupee was received from his official receiver on US 10000 rupees

Answer 1

Hello Journal entry will be==>
Cash a/c( 10000×0.75). Dr 7500
bad debts a/c. Dr 2500
to Shyam 1000

Answer 2

Amount Recoverable,paise recovered..

total debt (recoverable) = 10000

actually Recovered = 0.75paise

10000×0.75 = 7500

Non Recoverable= 10000-7500 = 2500.. Amounts to Bad debts..
its a loss...

The transaction affects three accounts... Shyam account (he owes money) , Cash a/c(recieved 75 paise Per rupee) , Bad debts a/c( 0.25 Per rupee is unrecoverable)..

Shyam account is a Personal account (as the name suggests)

cash account is a Real account (All the assets and Liabilities come under Real account; cash is an asset)

Bad debts account is a nominal account (All expenses incomes gains losses come under nominal account and Bad debts is a loss)


The Three golden rules of accounting are..

Personal account - Debit the receiver credit the giver..

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

Real account - Debit what comes in ,credit what goes out.

in contention with the above rules..

Shyam should be credited (he is the giver)

Bad debts should be debited (its a loss)

Cash should be debited (it is comingin).


So the journal Entry will be...

Cash a/c Dr 7500

Bad debts a/c Dr 2500

To Shyam a/c. 10000

(Being shyams account settled)