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Show treatment of provision for doubtful debts in balance sheet?

balance sheetprovision for doubtful debts
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    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 Statement Calculation Treatment
      Balance Sheet It 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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