Effect of increase in allowance for doubtful debt and recovery of bad debt on the presentation of cash flow?
Question by Joyce J: Effect of increase in allowance for doubtful debt and recovery of bad debt on the presentation of cash flow?
What is the effect of increase in allowance for doubtful debt and recovery of bad debt on the presentation of cash flow statement?
Best answer:
Answer by leowin1948
Increase in provision for bad debts,reduce profits and payment for distributable profit get reduced,ie cash is retained.Recovery of bad debts( for which provision had been made in earlier years)is credited to profit and loss account.Cash in flow.This is again depends on whether the firm was under loss in the previous year,or accumulated loss or profit.If there is no distributable profit after clearing accumulate loss,there may not be net cash out flow.If there is distributable profit,cash flow in the next accounting year after appropriation of profit in the next General Meeting,cash still will be in balance sheet.
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