Provision for Doubtful Debt on Debtors

Definition:
Provision for doubtful debt on debtors refers to the estimated amount that a company sets aside in its financial statements to cover potential losses from customers who may default on their outstanding debts. It is an accounting entry that recognizes the risk associated with collecting outstanding receivables and ensures that the financial statements reflect a more accurate picture of the company's financial position.

Purpose of Provision for Doubtful Debt:
The provision for doubtful debt serves multiple purposes, including:

1. Risk Management: It helps in managing the risk of bad debts by anticipating and accounting for potential losses from customers who may default on their payment obligations.

2. Accurate Financial Reporting: By recognizing the potential losses, the provision ensures that the financial statements reflect a more realistic estimation of the company's assets and liabilities.

3. Matching Principle: The provision helps in adhering to the matching principle of accounting, which states that expenses should be recognized in the same period as the related revenue. By establishing the provision, the company matches the potential bad debts expense with the revenue earned from the sale of goods or services.

Calculation:
The provision for doubtful debt on debtors is usually calculated as a percentage of the total outstanding receivables. The percentage is determined based on historical data, industry norms, and individual customer creditworthiness. For example, a company may decide to set the provision at 4% of its total outstanding debtors.

Adjustment of Revaluation of Assets and Liabilities (Part B):
The adjustment of revaluation of assets and liabilities is a process in accounting that involves revising the value of certain assets and liabilities to reflect their fair market value. This adjustment is made to ensure that the financial statements provide a more accurate representation of the company's financial position.

In the context of provision for doubtful debt on debtors, the adjustment of revaluation of assets and liabilities (Part B) may involve reassessing the value of the company's outstanding receivables based on their collectability. If the reassessment indicates a higher risk of default or non-payment, the provision for doubtful debt may need to be increased to reflect the potential losses.

The adjustment of revaluation of assets and liabilities is typically performed at the end of an accounting period during the preparation of financial statements. It ensures that the provision for doubtful debt on debtors is updated to reflect any changes in the collectability of outstanding receivables.

Overall, the provision for doubtful debt on debtors is an essential accounting practice that helps companies manage the risk of bad debts and present a more accurate financial position. The adjustment of revaluation of assets and liabilities (Part B) ensures that the provision is regularly reviewed and updated to reflect changes in the collectability of outstanding receivables.