Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Financial Statements of a Company

Question:

Amount set aside to meet losses due to bad debts is called:

Options:

Liability

Reserve

Provision

None of the above

Correct Answer:

Provision

Explanation:

Financial accounting is based on certain concept and convention. Conservatism concept is one of these which signifies "playing safe". On this basis, all future losses are recorded in books of account. Accordingly, when the amount of bad debts is not accurately ascertainable, a provision for bad & doubtful debt is created.