CA Soniya S. Sadhnani (Chartered Accountant Level II Candidate in the CFA (USA) Program 2017) (94 Points)
26 August 2013
Ankit
(CA, CS)
(3064 Points)
Replied 26 August 2013
Dear Soniya,
Bad Debt is the actual Bad Debt…i.e a debt which has actually turned bad.
However, Reserve for Bad Debt is the reserve created inorder to safeguard the loss due to a debt turning Bad. It is created n anticipation that a certain debt may become bad
Provision for Bad Debt is the provision for the bad debts.
Provision is a charge against P/L and Reserve is an appropriation of the profits
CA LOVELY ARORA
(C.A. B.Com (H) Graduate)
(2151 Points)
Replied 26 August 2013
Dear Soniya mam,
It is actually a Reserve, not a provision, read this, you will get answer:-
Bad Debt Reserve:- An account set aside by a company to account for and offset losses that arise as a result of defaults from futures loans. This figure may be calculated based on historical norms or other known information about the relative safety of the debt.
Reserves are generally set-aside by the company for some purpose, like bad debt reserve, capital reserve, general reserve etc...
Best Regards,
CA Lovely Arora
ca.lovelyarora @ gmail.com
S.R.Associates
(Tax & Investment Consultants)
(115 Points)
Replied 26 August 2013
Soniyaji,
It is actually a Provision which is created by debiting to P&L a/c.
The basic difference between Provision and Reserve is that in Reserve you debit to P&L Appropriation a/c whereas in Provision you debit to P&L a/c.
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