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Bad Debts, Provision for Bad and Doubtful Debt Video Lecture | Accountancy Class 11 - Commerce

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FAQs on Bad Debts, Provision for Bad and Doubtful Debt Video Lecture - Accountancy Class 11 - Commerce

1. What are bad debts in commerce?
Ans. Bad debts in commerce refer to debts that are unlikely to be collected by a business from its debtors. These debts are considered irrecoverable and can result in financial losses for the business.
2. What is the provision for bad and doubtful debts?
Ans. The provision for bad and doubtful debts is an estimated amount set aside by a business to cover potential losses from bad debts. This provision is created to ensure that the business's financial statements accurately reflect the true value of its accounts receivable.
3. How do bad debts impact a business's financial statements?
Ans. Bad debts can negatively impact a business's financial statements by reducing its net income and overall profitability. They also affect the balance sheet by reducing the value of accounts receivable and potentially increasing the provision for bad and doubtful debts.
4. What is the accounting treatment for bad debts?
Ans. In accounting, bad debts are typically written off as an expense on the income statement, which reduces the amount of accounts receivable. The provision for bad and doubtful debts is also adjusted accordingly to reflect the actual losses incurred by the business.
5. How can a business minimize the risk of bad debts?
Ans. A business can minimize the risk of bad debts by conducting thorough credit checks on customers before extending credit, setting credit limits, establishing clear payment terms, and following up on overdue payments promptly. Additionally, maintaining a sufficient provision for bad and doubtful debts can help mitigate the impact of bad debts on the business's financial health.
82 videos|105 docs|42 tests

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