1. Our Confession
ACT 110
Is EASY POP!
Because, Finals is Easy!

2. Financial Statements & Provision for Bad Debts
Lecture Notes 9
Financial Statements & Provision for Bad Debts

3. Provision for Bad Debts
Definition
A provision is any amount:
retained as reasonably necessary
for the purpose of providing for any liability or loss
which is either likely to be incurred,
or certain to be incurred
but uncertain as to amount or as to the date on which it will arise.

4. Provision for Bad debt What is it?
An account showing the expected amounts of debtors at the balance sheet who might not be able to pay their accounts.
Where to find it?
Provision for bad debt is usually found in the:
Trial Balance
Notes to the trial balance

5. Provision for Bad debt How to treat it?
Provision for bad debts found in the trial balance should be deducted from Debtors in Balance Sheet.
NOTES to Trial Balance
The treatment of provision for bad debts in the financial statements would depend on the instructions of the notes.
Create Provision for bad debts $100
Record as an Expense in Profit and Loss A/c $100
Deduct $100 from Debtors in Balance Sheet

6. Provision for Bad debt NOTES to Trial Balance
The treatment of provision for bad debts in the financial statements would depend on the instructions of the notes.
Increase Provision for bad debt by $50.
This means that there is a provision for bad debt in the trial balance already. E.g. $100
Record an increase in Provision for bad debt as an Expense in Profit and Loss A/c $50
Deduct $150 from Debtors in Balance Sheet

7. Provision for Bad debt NOTES to Trial Balance
The treatment of provision for bad debts in the financial statements would depend on the instructions of the notes.
Increase Provision for bad debt to $200.
This means that there is a provision for bad debt in the trial balance already. E.g. $100
Record an increase in Provision for bad debt as an Expense in Profit and Loss A/c $100
Deduct $200 from Debtors in Balance Sheet

8. Provision for Bad debt NOTES to Trial Balance
The treatment of provision for bad debts in the financial statements would depend on the instructions of the notes.
Decrease Provision for bad debt by $50.
This means that there is a provision for bad debt in the trial balance already. E.g. $100
Record a decrease in Provision for bad debt as an income in Profit and Loss A/c $50
Added to Gross Profit in Vertical Format
Deduct $50 from Debtors in Balance Sheet

9. Provision for Bad debt NOTES to Trial Balance
The treatment of provision for bad debts in the financial statements would depend on the instructions of the notes.
Decrease Provision for bad debt to $100.
This means that there is a provision for bad debt in the trial balance already. E.g. $150
Record an decrease in Provision for bad debt as an income in Profit and Loss A/c $50
Added to Gross Profit in Vertical Format
Deduct $100 from Debtors in Balance Sheet