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Provision for Bad Debts

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If at the period-end, you have any doubts that you will be paid for a previous sale, a provision should be made for this amount.

A provision is an early recognition of a likely bad debt (an offset against customers receivables rather than completely removed). The entry is as follows:

As you can see, an expense is immediately recognized in the Profit & Loss account. The provision is an ongoing item in the Balance Sheet. An example account:

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Last modified: June 1, 2008