expline bad debts expline a provision for doubtful debts ple

expline bad debts?
expline a provision for doubtful debts?
please write very briefly

iabahoes Year-end adjustments have ro be made as net reclassification, to conform book figures to physical inventory coun transactions Finally, a statement of comprehensive income and statement of financial position for the accounting year are to be drawn up Review Questions 1 Describe the final accounts of a sole trader. 2 Explain what is meant by \'year-end adjustment 3 Explain the following terms: a. Non-current asset; b. Current asset; c. Non-current liability, and d. Current liability. 4 Explain the purpose of preparing the statement of comprehensive income. 5 Explain the purpose of preparing the statement of financial position. 6 Explain briefly the objectives of preparing financial statements

Solution

Bad debts - When a firm sells its goods on credit to its customers, debtors are created then. When a debtor becomes insolvent or when he is not in a position to pay the amount due from him, he becomes a bad debt to the firm. In other words, when a debt becomes irrecoverable, it becomes a bad debt.Thus bad debts is a loss to the firm.

Provision for doubtful debts - When it is anticipated that some of the debtors may become bad in near future, a provision is created to cover the loss on account of bad debt. Such a provision is known as Provision for doubtful debts. Thus provision for doubtful debts is a reserve against the future recognition of certain accounts receivables as being uncollectable.