provisions for doubtful debts

provision for doubtful debt is an estimate of the % of its debtors which may go bad during an accounting period.

helps business organizations in creating a cushion for itself against bad debt expenses and future losses there from.

recorded in the balance sheet: taken away from debtors in current assets

recorded in income statement:

• increase in provision: expense
• decrease in provision: income

example:

5% provision for doubtful debts... debtors figure = £10 000

£10000 x 5% = £500