Bad debts and the Prudence Concept
-
Bad debts and the Prudence Concept
The treatment of bad debts or irrecoverable debts shows a practical application of the prudence concept. As the bad debts or irrecoverable debts are written off and treated as an expense in the income statement this will reduce the value of the trade receivables in the statement of financial position. Consequently the reduction will reflect the trade receivables as being more accurate and reliable. This will show a prudent amount that the business is likely to receive from credit sales made in the future.
