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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Treatment of Bad Debts and Provision for Doubtful Debts

In the Balance Sheet of a sole proprietor, the Provision for Doubtful Debts is shown in which manner?

The provision for doubtful debts is deducted from sundry debtors on the assets side of the Balance Sheet, after bad debts have been written off, so that debtors appear at their expected realisable value rather than as a liability or an addition.

  1. AAdded to the Sundry Debtors figure
  2. BShown as a separate liability on the liabilities side
  3. CDeducted from Sundry Debtors, after bad debts written off, to show net debtorsCorrect
  4. DDeducted from the capital account of the proprietor

Explanation

Under the usual presentation, the closing provision is deducted from Sundry Debtors (after deducting actual bad debts) on the assets side. This shows debtors at the amount expected to be realised. Showing it as a liability or adding it to debtors misstates the asset value.

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