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Doubtful provision and Bad debt provision are both same. It means the amount which the company is expecting that will not be received from custome / party due to the fact that either receivable is over due beyond the limit and as per company policy it should be provided or it is specific provision due to the reason that the party is either bankcrupt or in liquidation.
In both cases trade receivable will be reduced. To creat this provision Dr : Bad debt expense and Cr: Provision for trade receivable
It is just creating a provision account, when the company is sure that now it should be write off than it will record the following entries
Dr : provision for doubtful debt
Cr: Trade receivbles
Hope you understand.
The main difference between irrecoverable and doubtful debt is that ..for first one we write it off against receivable . The double entry is as follow
Bed debt expense(IS) Dr
Receivable Cr
While the rate of double debts depends on the industry in which company is oprating or financial position of that company itself.We don't write off doubtful debt straight away, instead we make a provision for it in accounts ...
Income statement Dr
Provision for doubtful debt Cr
Rates of doubtful provision / Bad debts provision / Allowance for Receivables / Provision for Bad Debts – these are same means. These debts are not yet irrevocable. However the creation of a Provision for Bad Debt means that the possible loss is accounted for immediately, in line with the concept of carefulness. The amount of the original debt will still remain in the ledger account just in case the customer does eventually pay
Dr. Bad Debts Expenses
Cr. Rates of doubtful provision / Bad debts provision / Allowance for Receivables / Provision for Bad Debts
The difference between the procedures for dealing with specific bad debts and a provision for doubtful debts includes:
A bad debt arises when there is ‘no hope’ of receiving payment from the customer. The amount is written out of the debtor’s account in the sales ledger and written off as a charge against profits. Whereas a provision for doubtful debts, also complying with the principles of FRS18, recognises the extent of the risk being taken by entering into credit sale transactions. The provision is an estimate of the possible liability that may arise rather than that of a certain nature.
