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What are the effects of creating provision for doubtful debts on the balance sheet ?

(a) It will increase our current liabilities. (b) It will decrease our current liabilities in balance sheet. (c) It will increase our current assets in balance sheet. (d) There will no effect of creating provision for doubtful debts on the balance sheet.

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تم إضافة السؤال من قبل خالد ابراهيم , Senior Accountant , Al Khayyat Group /Peugeot and Mazda Automative agent in Jordan
تاريخ النشر: 2013/11/08
Raja Meziou
من قبل Raja Meziou

I agree with Mr Khalid Noor, because the booking of the provision will be:

Debit     Bad Debt Expense

 

 Credit      Receivables

Farhad Ali
من قبل Farhad Ali , Accountant , AL Aaly holding

accordance with IAs37 provision.......

the double entry for provision is 

Provision exp Dr 

                      Provision liablity Cr

so it will increase current liablity and to clerifiy all of you that it should not reduced the receivble untill it is confirmed as libality , if it,s confirmed the entry will be

provision liablity Dr 

                        receivable cr...........

as the provision is the liablity of uncertain time and amount.........

Rahul Sharma
من قبل Rahul Sharma , Project Head & Finance Manager , Rays Power Private Limited

none of the above as it will decrease debtors/accounts receivable.

Bad  Debts Dr

Debtors/Accounts Receivables Cr

Impact decrease in the value of current assets.

As provisions are transfered to Profit and loss account so profit will decrease.

Khalid Noor
من قبل Khalid Noor , Accounting Manager , FedEx

None of the above, It ll decrease Current assets on one side of the balance sheet, and ll decrease profit on the other side.

Subash Thomas
من قبل Subash Thomas , Manager- Internal Audit. , Suhail Bahwan Group Holding LLC

None of the options is a right answer. Creating a provision for bad debts means, some of the debts may turn out to be bad or doubtful and not likely to be collected. This is a loss and is debited to the P&L account as an expenditure and corresponding decrease in the debtors will be resulted in the balance sheet. So, the effect in the balance sheet is decrease in current assets.

علاءالدين احمد محمد إبراهيم
من قبل علاءالدين احمد محمد إبراهيم , المحلل المالى ومسئول الميزانية , شركة خطوط اللياقة للأجهزة الرياضة المحدودة

 

  1. It will increase our current liabilities.

    But I want to clarify the definition of a provision

    Is dedicated to offset part of the result of the company's business to face

    1 - Depreciation of asset

    2 - Decrease in the value of asset

    3 - Face the expense expected to occur, but an undisclosed amount

 

Provision for doubtful debts the second caseis adescriptionofthe provision

 

Sreeraj V S
من قبل Sreeraj V S , Accountant , Airblast Middle East LLC

Nothing will happen to current assets or liability. We are creating provision for doubtful debt by debiting the curresponding amount to the Profit & Loss Account and crediting it to the 'Provision for doubtful debt account' under the group 'provisions'. This entry never change the current assets or current liability. Provision is not a current liability.

مستخدم محذوف‎
من قبل مستخدم محذوف‎

Simply said, the profit reported for that period will be lower and no impact on the balance sheet. So it''s (d)

Ahmed kandil
من قبل Ahmed kandil , Cost Controller , Battour Holding Cpompany

desrease profit increase liabilties 

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