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umesh (Querist)

29 August 2013 I think we made provision for doubtful debts to save the business from bad debts . But i dont know if the bad debts have occured then what help does the provision gave to the business ?

Please explain in this context the reason to make provision ???

Arun

Arun (Expert)

30 August 2013 First of all i want to make u clear that provision for doubtful debt is not made to save the business from bad debts. In accounts there is a method called prudence which means recognising all anticipated future losses immediately but ignoring anticipated profits. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty.
Even after making provision bad debt is a loss to the entity. Provisions are made just to give financial statement true and fair view.

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