Debtor: A debtor is an entity that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. Insolvent: Unable to pay debts owed. Declaring a Dividend: Companies often payout a portion of its profits as dividends to the shareholders. Dividend payouts are a way to provide shareholders with a return on their investment. The board of directors issues a declaration stating how much will be paid out and over what timeframe. 3 golden rules:debit the receiver, credit the giverdebit what comes in, credit what goes outdebit all the expenses and losses, credit all the incomes and gainsReason for debit and credit:Debtors A/c - Personal A/c, the debtor is liable to pay to us. He is the giver therefore it's creditedBad debts - Nominal A/c - Its the loss to the business, money doesn't receive from the debtor therefore its debitedJournal entryBad debts A/c Dr 2000 To Debtor A/c 2000Therefore, if M. Gul a debtor of Rs. 4000 has become insolvent and a dividend of 50% is declared, the entry is Dr Bad Debts 2000 To Debtors 2000.