Provision for Doubtful Debts

Adjustments at the Balance Date and Preparation of Sole Proprietorship Financial Statements

MS: Peruntukan Hutang Ragu · EN: Provision for Doubtful Debts · ZH: 呆账准备

Meaning

The provision for doubtful debts is an estimate of the amount of debtors that may not be collected in the future. It is usually calculated as a percentage of the debtors balance after deducting bad debts. Only the change (increase or decrease) in the provision is recorded in the Income Statement, while the provision balance is deducted from debtors in the Statement of Financial Position.

Example

Maju Trading has debtors of RM20,000 after bad debts and sets a provision for doubtful debts of 5%. Provision = RM1,000. This amount is deducted from debtors, giving a realisable value of RM19,000.

Source: DSKP KSSM Prinsip Perakaunan Tingkatan 4

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