Making the provision for bad and doubtful debts in anticipation of actual bad debts on the basis of _________________.
Making the provision for bad and doubtful debts in anticipation of actual bad debts on the basis of _________________.
The correct option is C convention of conservatism
The convention of
conservatism is the convention of caution, or the policy of playing safe. This
principle requires that in the situation of uncertainty and doubt, the business
transactions should be recorded in such a manner that the profits and assets
are not overstated and losses and liabilities are not understated. The
following are some examples:
1.
Closing stock is valued at cost price or Net realisable value, whichever is
lower.
2.
Joint life insurance policy is shown only at surrender value as against
the amount paid.
3.
Provision for doubtful debt is created in anticipation of bad debts etc.
4.
Provision for pending law suit against the firm, which may either be decided in
its favour.
The convention of conservatism is the convention of caution, or the policy of playing safe. This principle requires that in the situation of uncertainty and doubt, the business transactions should be recorded in such a manner that the profits and assets are not overstated and losses and liabilities are not understated. The following are some examples:
1. Closing stock is valued at cost price or Net realisable value, whichever is lower.
2. Joint life insurance policy is shown only at surrender value as against the amount paid.
3. Provision for doubtful debt is created in anticipation of bad debts etc.
4. Provision for pending law suit against the firm, which may either be decided in its favour.
