Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 21 - No. 18)
What is the purpose of making a provision for doubtful debts?
To increase revenue.
To reduce expenses.
To estimate and recognize the potential for uncollectible accounts receivable.
To increase the company's cash position.
Explanation
The provision for doubtful debts ensures that accounts receivables are stated at their net realizable value, by estimating potential bad debts.
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