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Which term is used to describe the estimated amount of bad debt that will arise from accounts receivable?
- a)Accrual basis accounting.
- b)Net receivables figure.
- c)Provision for doubtful debts.
- d)Bad debt expense.
Correct answer is option 'C'. Can you explain this answer?
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Which term is used to describe the estimated amount of bad debt that w...
The estimated amount of bad debt that will arise from accounts receivable is referred to as the "provision for doubtful debts." It is an important accounting concept used to account for potential losses due to uncollectible accounts and ensure accurate financial reporting.
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Which term is used to describe the estimated amount of bad debt that w...
Understanding Provision for Doubtful Debts
The term "Provision for Doubtful Debts" refers to the estimated amount of accounts receivable that may not be collected due to customer defaults. This accounting estimate plays a crucial role in financial reporting and managing credit risk.
Key Aspects of Provision for Doubtful Debts:
- Definition: It is an estimate of the potential losses that a company may incur from customers failing to pay their outstanding invoices.
- Purpose: The primary purpose is to align with the accrual basis of accounting, ensuring that expenses are recognized in the same period as the revenues they relate to. This provides a more accurate picture of a company's financial health.
- Calculation: Companies typically use historical data, customer credit ratings, and current economic conditions to estimate the provision. This helps in forecasting future losses.
Impact on Financial Statements:
- Balance Sheet: The provision reduces the total accounts receivable shown on the balance sheet, presenting a more realistic figure of what the company expects to collect.
- Income Statement: The amount recognized as a provision is recorded as an expense in the income statement, affecting the net income of the company.
Importance for Businesses:
- Risk Management: By estimating potential bad debts, businesses can manage their credit risk more effectively and make informed decisions regarding credit policies.
- Investor Confidence: Accurate accounting for bad debts enhances transparency and builds trust with investors, as it reflects prudent financial management.
In summary, the provision for doubtful debts is an essential accounting concept that helps businesses prepare for potential losses from accounts receivable, thereby ensuring financial stability and integrity.
The term "Provision for Doubtful Debts" refers to the estimated amount of accounts receivable that may not be collected due to customer defaults. This accounting estimate plays a crucial role in financial reporting and managing credit risk.
Key Aspects of Provision for Doubtful Debts:
- Definition: It is an estimate of the potential losses that a company may incur from customers failing to pay their outstanding invoices.
- Purpose: The primary purpose is to align with the accrual basis of accounting, ensuring that expenses are recognized in the same period as the revenues they relate to. This provides a more accurate picture of a company's financial health.
- Calculation: Companies typically use historical data, customer credit ratings, and current economic conditions to estimate the provision. This helps in forecasting future losses.
Impact on Financial Statements:
- Balance Sheet: The provision reduces the total accounts receivable shown on the balance sheet, presenting a more realistic figure of what the company expects to collect.
- Income Statement: The amount recognized as a provision is recorded as an expense in the income statement, affecting the net income of the company.
Importance for Businesses:
- Risk Management: By estimating potential bad debts, businesses can manage their credit risk more effectively and make informed decisions regarding credit policies.
- Investor Confidence: Accurate accounting for bad debts enhances transparency and builds trust with investors, as it reflects prudent financial management.
In summary, the provision for doubtful debts is an essential accounting concept that helps businesses prepare for potential losses from accounts receivable, thereby ensuring financial stability and integrity.
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Which term is used to describe the estimated amount of bad debt that will arise from accounts receivable?a)Accrual basis accounting.b)Net receivables figure.c)Provision for doubtful debts.d)Bad debt expense.Correct answer is option 'C'. Can you explain this answer? for B Com 2025 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about Which term is used to describe the estimated amount of bad debt that will arise from accounts receivable?a)Accrual basis accounting.b)Net receivables figure.c)Provision for doubtful debts.d)Bad debt expense.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for B Com 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which term is used to describe the estimated amount of bad debt that will arise from accounts receivable?a)Accrual basis accounting.b)Net receivables figure.c)Provision for doubtful debts.d)Bad debt expense.Correct answer is option 'C'. Can you explain this answer?.
Which term is used to describe the estimated amount of bad debt that will arise from accounts receivable?a)Accrual basis accounting.b)Net receivables figure.c)Provision for doubtful debts.d)Bad debt expense.Correct answer is option 'C'. Can you explain this answer? for B Com 2025 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about Which term is used to describe the estimated amount of bad debt that will arise from accounts receivable?a)Accrual basis accounting.b)Net receivables figure.c)Provision for doubtful debts.d)Bad debt expense.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for B Com 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which term is used to describe the estimated amount of bad debt that will arise from accounts receivable?a)Accrual basis accounting.b)Net receivables figure.c)Provision for doubtful debts.d)Bad debt expense.Correct answer is option 'C'. Can you explain this answer?.
Solutions for Which term is used to describe the estimated amount of bad debt that will arise from accounts receivable?a)Accrual basis accounting.b)Net receivables figure.c)Provision for doubtful debts.d)Bad debt expense.Correct answer is option 'C'. Can you explain this answer? in English & in Hindi are available as part of our courses for B Com.
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