provision for bad debts

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A provision calculated to cover the debts during an accounting period that are not expected to be paid. A general provision, e.g. 2% of debtors, is not allowed as a deduction for tax purposes. A specific provision, in which specific debts are identified, is allowed if there is documentary evidence to indicate that these debts are unlikely to be paid. A provision for doubtful debts (or allowance for doubtful accounts) is treated in the same way for tax purposes.

Subjects: Financial Institutions and Services — Accounting.

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