Creating a provision for doubtful debts shows a more

Solution

Creating a provision for doubtful debts means recognizing that some customers may not pay what they owe. This reduces the receivables to a more realistic (lower but safer) amount. This practice follows the: Principle of Conservatism (Prudence) Anticipate all expected losses but do not anticipate gains. • We record possible losses (bad debts) • We do not overstate assets or income Other options: • Matching principle → Match revenue with related expenses. • Double-entry system → Every transaction has two effects. • Going concern → Business will continue in future.