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.
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
5% provision for doubtful debts... debtors figure = £10 000
£10000 x 5% = £500