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(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.
I agree with Mr Khalid Noor, because the booking of the provision will be:
Debit Bad Debt Expense
Credit Receivables
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.........
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.
None of the above, It ll decrease Current assets on one side of the balance sheet, and ll decrease profit on the other side.
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.
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
Agree with above answer
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.
Simply said, the profit reported for that period will be lower and no impact on the balance sheet. So it''s (d)
desrease profit increase liabilties
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