Understanding Bad Debts and Provision for Doubtful Debts
When dealing with debtors, it's essential to account for bad debts and create provisions to manage potential losses. In this scenario, the following adjustments are made:

1. Bad Debts
- Bad debts amounting to ₹725 need to be written off.
- This amount is recognized as an expense in the Profit and Loss Account.

2. Provision for Doubtful Debts
- A provision for doubtful debts is calculated at 5% of total debtors.
- Total debtors = ₹14,500
- Provision = 5% of ₹14,500 = ₹725.

3. Treatment in Profit and Loss Account
- The bad debts expense of ₹725 will be recorded in the Profit and Loss Account.
- The provision for doubtful debts of ₹725 will also be recorded as an expense, leading to a total expense of ₹1,450 in the Profit and Loss Account.

4. Treatment in Balance Sheet
- The net debtors figure on the Balance Sheet will be adjusted:
- Gross Debtors = ₹14,500
- Less: Bad Debts = ₹725
- Less: Provision for Doubtful Debts = ₹725
- Net Debtors = ₹14,500 - ₹725 - ₹725 = ₹13,050.
- The provision for doubtful debts will appear as a liability on the Balance Sheet under the heading "Current Liabilities".

Conclusion
This approach ensures that the financial statements accurately reflect the realizable value of debtors, providing a clearer picture of the company's financial status. By recognizing both bad debts and provisions, the business can better manage its credit risk.