What is meant by provision for doubtful debts? How are the relevant accounts prepared and what journal entries are recorded in final accounts? How is the amount for provision for doubtful debts calculated?

Explanation

Provision for uncertain debts may be a reasonably arrangement concerning the expected dangerous debts from the debtors. usually it's provided once deducting the number of dangerous debts from the debtors. In different words provision is formed solely on smart debtors those that have already verified dangerous, there's no have to be compelled to build any provision thereon.

As provision for uncertain debts is formed once getting ready the balance, to record it we want a form of adjustment entry during this regard we tend to prepare debtors account and provision for uncertain debts account. For recording dangerous debts, the subsequent journal entry is passed:

Profit and Loss A/c Dr
To Provision for uncertain Debts A/c (Being provision for uncertain debts is formed out of current year profits)

Computation of the number of Provision for uncertain Debts because it is given at the top of an effort balance as associate degree adjustment, very little different connected adjustment could also be there as an example dangerous debts and discount on debtors. during this case provision for uncertain debt are created once deducting the figure for dangerous debts out of the mortal figure.