Question
Why is Provision for Doubtful Debts created? How is it shown in the Balance Sheet?
✓
Answer
A provision is created to cover any possible loss on account of bad-debts likely to occur in future. Such a provision is created at a fixed percentage on debtors every year and is called “Provision for Bad and Doubtful Debts'. The term “Provision should be used instead of “Reserve' because the aim is not to strengthen the financial position of the business but to cover an expected future loss. The amount of Provision for Doubtful Debts on the one hand, is shown on the debit side of the Profit and Loss Account and on the other hand, is deducted from Sundry Debtors on the assets side of the Balance Sheet, so that the debtors may appear at their realisable value in the Balance Sheet.
Need a full question paper?
Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.
Explore more
Similar questions
State any two advantages of incomplete records.
“Liabilities side of the Balance Sheet always represents Credit balances.” Do you agree?
Name two information systems used in an organisation.
Give two characteristics of a Balance Sheet.
Cash column in the Cash Book cannot have a negative balance, i.e., payments cannot be more than cash balance in hand. Why?
Net Sales during the year 2011 is ₹ 2,85,000. Gross Profit is 25% on Sales. Find out Cost of Goods Sold.
What is meant by a Sales Return Book?
What does ‘Credit balance as per the Bank Pass Book mean?
Calculate the stock at the end:
| ₹ | |
| Stock in the beginning | 10,000 |
| Cash Sales | 30,000 |
| Credit Sales | 20,000 |
| Purchases | 35,00 |
| Rate of Gross Profit on Cost | 1/3 |
Arun is a trader. While preparing his final accounts on 31st March. 2018, he made a provision for doubtful debts @ 4% of the sundry debtors amounting to ₹ 42,000. During the year ended 31st March, 2019, doubtful debts amounted to ₹ 3,400. On 31st March, 2019, sundry debtors were ₹ 56,500 and the provision for doubtful debts was maintained at the same rate.
Show the entries to record the above matters in Arun's Ledger Accounts.
Show the entries to record the above matters in Arun's Ledger Accounts.