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    Question

    Provision for bad and doubtful debts is based on the

    principle of
    A Full disclosure Correct Answer Incorrect Answer
    B Materiality Correct Answer Incorrect Answer
    C Conservatism Correct Answer Incorrect Answer
    D Consistency Correct Answer Incorrect Answer
    E Objectivity Correct Answer Incorrect Answer

    Solution

    Accounting conservatism is a principle that requires company accounts to be prepared with caution and high degrees of verification. All probable losses are recorded when they are discovered, while gains can only be registered when they are fully realized. The principle of conservatism means that a company shoul · record for the anticipated losses and expenses · but do not record the anticipated profits or gains As such, Provision for Doubtful debt is based on recording anticipated losses. The debtors have not defaulted yet, but if you are anticipating a default in the future, record it as an expense now.

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