Provisions for Doubtful Debts
Provision (to provide for) is used when you are expecting bad debts. Contrast this with bad debts which are already known to be unpaid.
Because you are expecting what amount of owing will go bad, you will need to have a % to multiply it against the total owing. The estimated percentage that will go bad debts will usually be provided to you.
At any year, the total amount of debtors totaled to $2000. It is estimated that 5% of the debts will become bad debts. You will be required to draw a provision account and post the provision of doubtful debts into the statement of financial position.
2 thoughts on “Provision for Doubtful Debts”
Please what is the treatment for provision for doubtful debt in trial balance high figure(amount), while in that additional information, provision for dobtful debt is low figure(amount) and as well as bad debt on is own in trial balance.
I knew that reduction in provision for bad debt is “gain”
Hi, it was explained in the next blog post. Cheers.