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Question
Reserve for doubtful debts is created when recovery of bad debts is _________.
Reserve for doubtful debts is created when recovery of bad debts is _________.
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Solution
The correct option is C Doubtful
It is quite possible that the whole of the amount may not be realised in future. However, it is not possible to accurately know the amount of such bad debts. Hence, we make a reasonable estimate of such loss and provide the same. Such provision is called provision for bad debts and is created by debiting profit and loss account. Reserve for doubtful debts is created when the recovery of bad debts id doubtful. Provision for doubtful debts is also shown as a deduction from the debtors on the asset side of the balance sheet.
It is quite possible that the whole of the amount may not be realised in future. However, it is not possible to accurately know the amount of such bad debts. Hence, we make a reasonable estimate of such loss and provide the same. Such provision is called provision for bad debts and is created by debiting profit and loss account. Reserve for doubtful debts is created when the recovery of bad debts id doubtful. Provision for doubtful debts is also shown as a deduction from the debtors on the asset side of the balance sheet.
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