Accounting and Governance Information 2022

RUNNING HEAD: ACCOUNTING AND GOVERNANCE
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Accounting and Governance
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Accounting and Governance
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Introduction
An allowance for doubtful debts is the amount that is estimated on account receivables that will
not be received by the debtors. Regardless of company procedures and policies for collection of
amount on credit sales, the chances of failure to receive payment is always present in credit sales
(Ruch and Taylor, 2015). On the basis of matching principles in accounting companies are
required to open doubtful debts account in order to offset bad debt expenses (Carey et.al, 2017).
In this report Galore’s case is studied in order to understand the impact of reserve of doubtful
debts on balance sheet and growth rate of the company.
Provision for doubtful debts
Part A
1. Factors for estimating yearly allowance for doubtful doubts
Provision for bad debts is made on the total of trade receivables during the year. This
transaction affected income statement and balance sheet as provision deducted from
profits of the year and uncollectible amount from trade receivables in balance sheet
(Maynard, 2017). This is a contra account that affects firm’s growth from both the
aspects. In order to calculate the percentage of uncollectible amount, firms mainly review
its previous year bad debts if the last year percentage is still valid no changes are done.
But if conditioned is changed the company decrease or increase its percentage (Cassell
et.al, 2015).
2. Impact of this on Galore’s financial report
The impact of provision for doubtful debts is mainly on balance sheet and income
statement of the company. The higher the percentage of doubtful debts less will be the
profits showed in the company’s financial statement. As in case of galore’s financial
report, if allowances are made on 2 % of credit sales the stronger the financial report of
the company as compare to 4% allowances because these are deducted from profits and
higher the percentage lower the growth rate for the company. But as per the IFRS
standards the rates are decided as per the historical data or from future information
(Kober et.al, 2010).

Accounting and Governance
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