Making of provision for bad debts
Before making of provision of bad debts accounts , you must understand the concept of provision , reserve etc. Because without understanding these you cannot understand the concept of making of provision of bad debts accounts .
Meaning of provision or reserve
When we start our business , we faces certain losses like bad debts , depreciation or discount so if we do not keep some part of our cash or profit in cash form in business pocket , we can face the problem of lack of money for operational requirement , so we take future planning and after scientific estimation we makes provision of reserve of our losses on the certain percentage of loss it may be 5% or 10% or 15 % . This is called provision or reserve of loss .
•Making of this account is very easy
•It will open with opening balance of provision for bad debts
•it will show in credit side of this account .
•In the debit side we will write actual bad debt of trail balance and outside
•in the debit side also writing new provision of bad debts with writing to balance c/d
•Balancing figure will be the amount of provision transferring to profit and loss account as loss written off .
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