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

In the final accounts of a sole proprietor, the provision for doubtful debts is shown in the Balance Sheet in which manner?

The provision for doubtful debts is deducted from Sundry Debtors on the assets side of the Balance Sheet. It is an estimate of loss expected on receivables, so debtors are shown at the amount likely to be realised, not as a liability.

  1. AAs a deduction from Sundry Debtors on the assets sideCorrect
  2. BAs an addition to Sundry Creditors on the liabilities side
  3. CAs a deduction from Capital
  4. DAs an item in the Trading Account on the credit side

Explanation

The provision for doubtful debts is a estimate of likely loss on debtors. It is shown as a deduction from Sundry Debtors on the assets side, giving net realisable debtors. Showing it under liabilities or capital misstates the nature of the item.

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