provisions for doubtful debts

reasons for making provision for doubtful debts

recording provision for doubtful debts

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  • Created by: fdee
  • Created on: 12-01-11 17:12

reasons for making 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.

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recording provision for doubtful debts

 

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

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