Sorry, you do not have permission to ask a question, You must login to ask a question.


Forgot Password?

Need An Account, Sign Up Here

Please briefly explain why you feel this question should be reported.

Please briefly explain why you feel this answer should be reported.

Please briefly explain why you feel this user should be reported.

Sign InSign Up

AccountingQA

AccountingQA Logo AccountingQA Logo

AccountingQA Navigation

  • Home
  • Ask Questions
  • Write Answers
  • Explore
  • FAQs
Search
Ask A Question

Mobile menu

Close
Ask a Question
  • Home
  • Questions
    • Most Visited
    • Most Active
    • Trending
    • Recent
  • Follow
    • Categories
    • Users
    • Tags
  • Write an Answer
  • Badges & Points
  • Request New Category
  • Send a Suggestion
  • Search Your Accounting Question..

A_Team
A_TeamCurious
In: 1. Financial Accounting > Miscellaneous

Is bad debt a nominal account?

Is bad debt a nominal account?
  • 1 1 Answer
  • 0 Followers
  • 0
Share
  • Facebook

    Related Questions

    • Accounting terms
    • What do you mean by goodwill ?
    • What do you mean by LLP ?
    • What are kind or classes of shares issued by companies in accounting ?
    • Which type of accounting is done by NPOs ?
    • How to locate errors in trial balance?
    • what does a trial balance include?

    You must login to add an answer.


    Forgot Password?

    Need An Account, Sign Up Here

    1 Answer

    • Voted
    • Recent
    1. SidharthBadlani CA Inter Student
      2023-01-13T07:12:33+00:00Added an answer on January 13, 2023 at 7:12 am
      This answer was edited.

      Bad debts mean the money owed by customers who have gone bankrupt or the likelihood of who’s ever returning the money is significantly low. Bad debt is a nominal account.

      A nominal account is an account that records the business transactions belonging to a certain category of income, expense, profit or loss. The balances on nominal accounts are normally written off at the end of each financial year. For example, sales A/c, purchases A/c, interest income, loss from the sale of assets etc.

      Why are bad debts A/c classified as a nominal account?

      First of all, let us understand the other two types of accounts – personal accounts and real accounts.

      Personal accounts deal with the records of the business’ transactions with a particular person or entity. For example Mukesh A/c, Mahesh A/c, Reliance A/c, Suresh and Co. A/c etc.

      Real accounts deal with transactions and records related to assets. The balance in these accounts is normally carried forward from one period to another. For example “Furniture A/c “, ” Building A/c ” etc.

      Now that we have understood the basic definitions of all three types of accounts, we can discuss the reason behind the classification of bad debts as nominal accounts.

      A bad debt is a loss that the company has incurred. It may be due to bankruptcy of customers, customer fraud etc. The company isn’t going to receive that money. The bad debts are written off at the end of the year by transferring them to profit and loss A/c.

      Thus, bad debts relate to loss and are normally not carried forward from one period to another. Hence, they are classified as nominal accounts.

      Treatment of Bad Debts

      Bad debts are written off at the end of each year by debiting them to the profit and loss A/c. The amount of bad debts is reduced from the amount of debtors that the company has.

      A company may also choose to create a provision for bad debts for the balance amount of debtors that the company has after adjusting for bad debts. This provision represents a rough estimate of the amount due to debtors that the business expects to not receive. In other words, it is an estimate of customer bankruptcy that the business expects.

      Conclusion

      We can conclude that

      • There are primarily three types of accounts – real, personal and nominal.
      • Bad debts are a nominal account.
      • Bad debts is a loss that the business has incurred
      • It may be due to bankruptcy of customers, fraud etc
      • Bad debts are written off each year by transferring them to the income statement
      • 0
      • Share
        Share
        • Share on Facebook
        • Share on Twitter
        • Share on LinkedIn
        • Share on WhatsApp

    Sidebar

    Question Categories

    • 1. Financial Accounting

        • Accounting Terms & Basics
        • Bank Reconciliation Statement
        • Banks & NBFCs
        • Bills of Exchange
        • Capital & Revenue Expenses
        • Consignment & Hire Purchase
        • Consolidation
        • Contingent Liabilities & Assets
        • Departments & Branches
        • Depreciation & Amortization
        • Financial Statements
        • Goodwill
        • Insurance Accounting
        • Inventory or Stock
        • Investment Accounting
        • Journal Entries
        • Ledger & Trial Balance
        • Liquidation & Amalgamation
        • Miscellaneous
        • Not for Profit Organizations
        • Partnerships
        • Ratios
        • Shares & Debentures
        • Source Documents & Vouchers
        • Subsidiary Books
    • 2. Accounting Standards

        • AS
        • IFRS
        • IndAS
    • 3. Cost & Mgmt Accounting
    • 4. Taxes & Duties

        • GST
        • Income Tax
    • 5. Audit

        • Bank Audit
        • Internal Audit
        • Miscellaneous - Audit
        • Statutory Audit
    • 6. Software & ERPs

        • Tally
    • 7. MS-Excel
    • 8. Interview & Career
    • Top Questions
    • I need 20 journal entries with ledger and trial balance?

    • Can you show 15 transactions with their journal entries, ledger, ...

    • What is furniture purchased for office use journal entry?

    • What is loose tools account and treatment in final accounts?

    • Following is the Receipts and Payments Account of Bharti Club ...

    • Prepare Income and Expenditure Account of Youth Club from the ...

    • What is mobile phone depreciation rate?

    • What is the Journal Entry for Closing Stock?

    • How to show adjustment of loose tools revalued in final ...

    • What is the treatment of preliminary expenses in cash flow ...

    Hot Topics

    Accounting Policies Accounting Principles Balance Sheet Bank Reconciliation Statement Bill of Exchange Branch Accounting Calls in Advance Capital Capital Expenditure Companies Act Compound Entry Consignment Creditors Current Assets Debit Balance Debtors Depreciation Difference Between Dissolution of Firm Dissolution of Partnership Drawings External Users Fictitious Assets Final Accounts Financial Statements Fixed Assets Fixed Capital Fluctuating Capital Gain Impairment Installation Interest Received in Advance Internal Users Journal Entry Ledger Loose Tools Miscellaneous Expenditure Profit Rent Rent Received in Advance Reserves Revaluation Revenue Expenditure Revenue Reserve Sacrificing Ratio Subscription Subscription Received in Advance Trial Balance Type of Account Uncalled Capital
    • Home
    • Questions
      • Most Visited
      • Most Active
      • Trending
      • Recent
    • Follow
      • Categories
      • Users
      • Tags
    • Write an Answer
    • Badges & Points
    • Request New Category
    • Send a Suggestion

    Most Helping Users

    Astha

    Astha

    • 50,286 Points
    Leader
    Simerpreet

    Simerpreet

    • 72 Points
    Helpful
    AbhishekBatabyal

    AbhishekBatabyal

    • 65 Points
    Helpful

    Footer

    • About Us
    • Contact Us
    • Pricing
    • Refund
    • Forum Rules & FAQs
    • Terms and Conditions
    • Privacy Policy
    • Career

    © 2021 All Rights Reserved
    Accounting Capital.