Explain the following items and outline how they are treated in the final accounts: (a) increase in provision for doubtful debts (b) decrease in provision f...

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(a) Increase in provision for doubtful debts: A provision for doubtful debts is an estimate of the amount of money that a company may not receive from its customers. If a company expects that the number of unpaid debts may increase, it will increase the provision for doubtful debts. This will result in a decrease in the profit of the company, as the increase in the provision will be considered as an expense in the income statement. In the final accounts, the increase in provision for doubtful debts will be shown as a deduction from the debtors in the balance sheet.

(b) Decrease in provision for doubtful debts: If the company's customers pay off their debts and the company no longer expects any bad debts, it may decrease the provision for doubtful debts. This will result in an increase in the profit of the company, as the decrease in the provision will be considered as an income in the income statement. In the final accounts, the decrease in provision for doubtful debts will be shown as an addition to the debtors in the balance sheet.

(c) Provision for discount on debtors: A provision for discount on debtors is an estimate of the amount of money that a company may have to give as a discount to its customers for paying their debts early. This provision is created to reflect the expected loss of income due to the discount. In the final accounts, the provision for discount on debtors will be shown as a deduction from the debtors in the balance sheet.

(d) Provision for discount on creditors: A provision for discount on creditors is an estimate of the amount of money that a company may have to pay as a discount to its suppliers for paying their debts early. This provision is created to reflect the expected loss of income due to the discount. In the final accounts, the provision for discount on creditors will be shown as an addition to the creditors in the balance sheet.

(e) Provision for depreciation: Depreciation is the decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors. A provision for depreciation is created to reflect the decrease in the value of fixed assets, such as buildings, machinery, and vehicles. In the final accounts, the provision for depreciation will be shown as a deduction from the fixed assets in the balance sheet. The provision for depreciation is also shown as an expense in the income statement, which reduces the profit of the company.