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Accounting Concepts and Principles
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A provision is made for possible bad and doubtful debts out of current year's profits based on the convention of
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conservatism
💡 Explanation:
The provision of bad debts is made out of the current year's profits based on the convention of conservatism. This convention means that all the risks inherent in a business must be taken into account. If there is a possibility of loss, it should be taken into account at the earliest. So, there is a possibility that some amount may not be paid by debtors, therefore a provision is made for it to cover that loss.