Provision for doubtful debts and the Accounting Concepts
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Provision for doubtful debts and the Accounting Concepts
The provision for doubtful debts aligns to the prudence concept. As the provision is subtracted from trade receivables this will reflect a realistic value which will be received by the business. The provision also ensures that the trade receivables are not overvalued and do not mislead the users of the accounts as the provision gives a true and fair view of the business's trade receivables. The provision for doubtful debts also complies with the accruals and matching concept. This attempts to match the provision of the expense to the period when the sales revenue was earned. And is also a way of ensuring that profit for this year is adjusted for debts which ultimately may never be received.
