the two effects of new RDD are
Answers
Answer:
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Explanation:
Doubtful debts are those debts whose recovery is doubtful. It is not certain whether they will be recovered or not. It is anticipated loss. Therefore, suitable provisions should be made for bad and doubtful debts, so as to calculate true net profit of the business. Provision for doubtful debts is created on debtors balance (not on bad debts) at a fixed percentage. Firms make provisions for expected losses base on their prior experience. Provision for doubtful debts is made to cover for possible losses from debtors going bad. If RDD already exists in the trial balance, then the same is credited to profit and loss account since this is the old R.D.D and needs to be reversed. The effect for R.D.D appearing as an adjustment are as follows:
A. Profit and loss A/c-Debt side (add to old bad debts)
B. Balance Sheet-Asset side (deduct from sundry debtors)
The journal entry for same is as follows:
Reserve for Doubtful Debts A/c Dr.
To Sundry Debtors A/c