Accounting for IGCSE & O level - Final Statements (Section 6 - No. 41)

What is the primary purpose of making a provision for doubtful debts?

To increase the amount of cash in the bank.

To recognise that some receivables may not be collected.

To increase the company's sales revenue.

To decrease the cost of goods sold.

A provision for doubtful debts recognizes that some receivables may not be collected, reflecting a more realistic view of the company's assets.