Provisioning on bad/impaired credits
- Thread starter Bullzeye
- Start date
It depends upon which accounting standards you're using. It's become quite involved these days and I'm not sure to what extent there's uniformity amongst them. IFRS now allows a provision for expected credit losses but how detailed the calculation of it has to be depends on the operating activities of the organisation.
Provision methods:
1. Percentage of sales method = a provision for bad debts wherein a certain percentage is multiplied to the net sales for the year
2. Percentage of A/R method = a certain percentage is multiplied to the net realizable value of A/R to arrive in the ending allowance account of bad debts
3. aging method = individual A/R balances are aged to determine w/c accounts are due and not past due
1. Percentage of sales method = a provision for bad debts wherein a certain percentage is multiplied to the net sales for the year
2. Percentage of A/R method = a certain percentage is multiplied to the net realizable value of A/R to arrive in the ending allowance account of bad debts
3. aging method = individual A/R balances are aged to determine w/c accounts are due and not past due