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Nancy Chawla

Show treatment of provision for doubtful debts in balance sheet?

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1 Answer

  1. Meaning of Provision for Doubtful Debts

    Almost every business entity has some debtors, of which recovery is doubtful. It may not be realised. For this purpose, provision is created which is known as provision/reserve for doubtful debts. This provision is created on the basis of experiences of the previous years. It is an anticipated loss therefore provision for doubtful debts is necessary.

    Treatment of Provision for Doubtful Debts in Balance Sheet

    Financial StatementCalculationTreatment
    Balance SheetIt is calculated on the following amount:

    Sundry Debtors – Bad Debts

    Deducted from Accounts Receivables/Sundry Debtors under the head Current Assets

    Let me help you understand the treatment better with the help of an example using trial balance and balance sheet.

    Example

    DEbtors in TB & RDD Adjustment

    Show treatment of Provision for Doubtful Debts in the Balance Sheet of ABC Ltd.

    RDD in Balance Sheet

    5% provision for doubtful debts is calculated on 500,000 (5% * 500,000 = 25,000) & deducted from sundry debtors.

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