While preparing the provision for doubtful debts accounts, following procedure should be followed:
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- Any provision for bad debts appearing in credit column of trial balance should be treated as opening balance and should be brought forward on the credit side of provision for doubtful debts account.
- Bad debts to be written-off (outside trial balance) should be written-off.
- Now total debit balance of Bad debts account (which includes bad debts written-off during the year as-well-as written-off now) is transferred to provision for doubtful debts account.
- The new provision for doubtful debts required for next year (as per adjustments) is put on the debit side of provision for doubtful debts account as “To Balance c/d”.
- The balancing figure of provision for doubtful debts account is then transferred to profit and loss account.