Define: Bad Debt Provision

A bad debt provision is an accounting method used to account for potential losses from customers who are unable to pay their debts.

A bad debt provision is necessary to accurately reflect the financial position of a company and to account for potential losses from unpaid debts.

A bad debt provision is typically calculated based on historical data, credit risk assessments, and other relevant factors to estimate the amount of potential bad debts.

No, a bad debt provision is not mandatory for all businesses, but it is a common practice for companies that extend credit to customers.

Yes, a bad debt provision can be reversed if the company determines that the previously estimated bad debts are no longer probable.

A bad debt provision can impact a company’s profitability and financial statements by reducing the amount of accounts receivable and increasing the amount of expenses.

A bad debt provision can be deducted as a business expense, which can reduce a company’s taxable income and ultimately lower its tax liability.

Yes, bad debt provisions are governed by accounting standards such as Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

Yes, a company can write off bad debts without making a bad debt provision, but doing so may not accurately reflect the company’s financial position.

A company can minimize the need for a bad debt provision by implementing strict credit policies, conducting thorough credit checks on customers, and actively managing accounts receivable.