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The amount of the bad debt provision can be computed in two ways, either (1) by reviewing each individual debt and deciding whether it is doubtful (a specific provision); or (2) by providing for a fixed percentage (e.g. 2%) of total debtors (a general provision). The change in the bad debt provision from year to year is posted to the bad debt ...
IAS 37 establishes the definition of a provision as a "liability of uncertain timing or amount", and requires that all the following conditions be fulfilled before a provision can be recognized: the entity currently has a liability as a result of a past event; an outflow of resources is likely to be needed to settle the liability; and
The recording of the liability in the entity's balance sheet is matched to an appropriate expense account on the entity's income statement. In U.S. Generally Accepted Accounting Principles (U.S. GAAP), a provision is an expense. Thus, "Provision for Income Taxes" is an expense in U.S. GAAP but a liability in IFRS.
Also known as a bad debt reserve, this is a contra account listed within the current asset section of the balance sheet. The doubtful debt reserve holds a sum of money to allow a reduction in the accounts receivable ledger due to non-collection of debts. This can also be referred to as an allowance for bad debts.
Liabilities of uncertain value or timing are called provisions. When a company deposits cash with a bank, the bank records a liability on its balance sheet, representing the obligation to repay the depositor, usually on demand. Simultaneously, in accordance with the double-entry principle, the bank records the cash, itself, as an asset. The ...
A journal entry is the act of keeping or making records of any transactions either economic or non-economic. Transactions are listed in an accounting journal that shows a company's debit and credit balances. The journal entry can consist of several recordings, each of which is either a debit or a credit. The total of the debits must equal the ...
Once the vendor is paid for the t-shirts, the accounts payable entry is removed from the balance sheet. Importance of Accounts Payable Accounts payable represent short-term debt obligations.
Conservatism plays an important role in a number of accounting rules, including the allowance for doubtful debts [3] and the lower of cost or market rule, [4] which states that one should record inventory at the lower of either its acquisition cost or its current market value.