There are a number of financial complications that may arise before an entrepreneur. The best way to deal with this is to ensure that there is a set of rules and regulations associated with the policy that is associated with the company.
The most important financial issue that a particular company can face is non-payment of a loan that has been forwarded by the company to certain investors. Technically speaking there are certain debtors who would prove to be bad in the current financial year.
Bad debtors are those who cannot return the money that has been taken by them due to certain financial crisis or bad business deals in that particular year. Also, there may be certain situations, when a particular debtor who has proved to be a good debtor can turn into a bad one in the upcoming year resulting in loss of that amount for the company.
To deal with such situations, it is imperative that a company make provisions out of the profit and loss account of current year and to ensure that upcoming year should not suffer losses that have been a part of the company in this year.
However, such decisions regarding preparation of policy are taken at the year-end that surely makes it an item of adjustment.
This provision for bad debts is placed on liabilities side, where it shows a credit balance. While in case of sundry debtors, it can be placed on asset side of Balance sheet. In case of profit and loss account, it is also shown on the debit side of the data table.
Links of Previous Main Topic:-
Links of Next Accounting Topics:-