Provision for Doubtful Debts
Definition
An estimate of receivables unlikely to be collected, charged as an expense and set against the receivables balance. It applies the prudence principle so assets and profit are not overstated.
Related Terms in Core Accounting
Capital Reserve
A reserve created from capital profits — such as gains on sale of fixed assets or premium on shares — rather than from trading profit. It is generally not available for distribution as dividends.
Revaluation Reserve
A reserve recording the increase in the carrying value of an asset when it is revalued upward. It is part of equity and is not a realised profit until the asset is sold.
Depreciation vs Amortization
Both spread an asset's cost over its useful life, but depreciation applies to tangible assets like equipment, while amortization applies to intangible assets like patents and to loan principal repayment.
Carriage Inward and Outward
Carriage inward is the freight cost of bringing purchases into the business, added to the cost of goods; carriage outward is the cost of delivering goods to customers, treated as a selling expense.
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