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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 account balance (after the year-end adjustment) is normally shown as:

The provision for doubtful debts is deducted from Sundry Debtors in the Balance Sheet, because it estimates the part of debtors unlikely to be collected, so debtors appear at their expected realisable value rather than as a liability.

  1. AAn addition to Sundry Debtors
  2. BA deduction from Sundry DebtorsCorrect
  3. CA liability on the liabilities side, shown separately
  4. DA deduction from the proprietor's capital

Explanation

The provision is a valuation reserve against debtors. Presenting Sundry Debtors less the provision shows the expected realisable value. It is not a liability or a charge against capital.

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