How are provisions for doubtful debts determined in financial statements?

Personal estimates and judgments

Financial statements are prepared based on a combination of factual data, personal opinions, estimates, and judgments under various circumstances. The calculation of depreciation takes into account the useful economic life of fixed assets. Provisions for doubtful debts are made based on estimates and personal judgments. When valuing inventory, the convention of conservatism is followed, where either the cost or market value, whichever is less, is considered. The use of personal opinions, judgments, and estimates in financial statement preparation aims to prevent any possibility of overstatement of assets and liabilities, as well as income and expenditure. It is essential to exercise prudence while making these decisions, adhering to accounting principles and standards to ensure the accuracy and reliability of the financial information presented.