Provision for bad and doubtful debts and provision for discount on debtors

ruchi lahoti

Provision created for bad and doubtful debts is created for debts that remain unpaid as on the due date. Provision is made for the same in order to follow the concept of prudence (provide for all losses and account no gains) Provision created for discount on debtors is for those debtors who repay their debts well in advance of the due date and for this they are sometimes given discount. Provision is made for these discounts as it is an expected loss The ledger posting for both is same 1. debit side of P&L and 2. deduct from debtors

Thread Starter

What about provision for discount on creditors??

ruchi lahoti

Similar to cash discount allowed to debtors, the company may also have a chance to receive the cash discount from the creditors for prompt payment Provision for discount on creditors will be shown 1. on the credit side of Profit and Loss account and 2. on the liabilities side of the Balance sheet by way of deduction from Sundry creditors.

Thread Starter

Is provision for discount on creditors is vilation of prudence concept ?

Nandini S

Yes it is violation as it will be profitable for business and business can't anticipate profits