chapter 19: bad debts, bad debts recovered and provision for doubtful debts

Question 1

define bad debts, provision for doubtful debts and bad debts recovered

Answer 1

bad debts: the actual amount businesses will not be able to collect from debtors which is written off
provision for bad debts: an estimate of the amount which the business will lose due to possible bad debts
bad debts recovered: money the business recieves from a debtor who has been written off

Question 2

what is the need for control?

Answer 2

• it helps the business ensure that they only sell to customers that are credit worthy
• it reduces the risk of bad debts

Question 3

explain the need to declaire some debts as bad and to provide for doubtful debts

principles:M/A AND P

Answer 3

matching and accrual principle
- revenue gained/earned from the credit saled during the financial year must be matched againest any loss for the same financial period
prudence principle
- if the bsuiness anticipates that some the debts won’t be collected, it’s prudent to recognise this loos as an expense in the income statement so our profits aren’t overstated.