Question 2

A clothing wholesaler is experiencing cash flow problems for several years due to its accounts receivables.Some of the amounts due by debtors are irrecoverable and the company is contemplating creating a provision for doubtful debts.

(a)How is a provision for doubtful debts created and maintained? Explain, with figures if necessary

(b)Discuss, the concept or convention on which a provision for doubtful debts is based.

(c)Explain, the differences between a bad debt and a provision for doubtful debts.