How is provision for bad debt treated ?

Provision for bad debt is treated as an expense on a company's income statement. It is an estimate of the amount of accounts receivable that are expected to be uncollectible. This provision is made to reflect the potential losses that a company may incur due to customers defaulting on their payments.

The provision for bad debt is typically calculated based on historical data, industry trends, and the overall economic environment. It is important for companies to regularly review and adjust their provision for bad debt to ensure that it accurately reflects the current financial situation.

When the provision for bad debt is adjusted, it is recorded as an expense on the income statement, which reduces the company's net income. This helps to provide a more accurate picture of the company's financial health and performance.