Provision for bad and double debts in companies final accounts is treated in?
Answer Details
Provision for bad and doubtful debts is created by a company to estimate the amount of its accounts receivable that may not be recoverable in the future. It is a provision made to cover potential losses arising from non-payment of debts.
In the final accounts of a company, the provision for bad and doubtful debts is treated in the Profit and Loss Account. The Profit and Loss Account summarizes the company's revenues, expenses, gains, and losses over a specified period of time, typically one year. The provision for bad and doubtful debts is considered as an expense for the company and is subtracted from the gross profit to arrive at the net profit.
The treatment of provision for bad and doubtful debts in the Profit and Loss Account follows the accrual accounting principle, which recognizes revenue and expenses when they are incurred, not when they are received or paid. By recognizing the provision for bad and doubtful debts as an expense in the Profit and Loss Account, the company is able to account for potential losses that may arise from non-payment of debts, and this provides a more accurate picture of the company's financial performance.
Therefore, the correct answer is option B: Profit and Loss Account.