Answer to Question #259916 in Financial Math for JAMES

Question

a) Differentiate between bad debt written off and provision for doubtful debt (5mks)

b) Why do you think that cash flow statement is necessary to any business (5mks)

c) Explain the cost which should not be included in the initial cost of property plant

and equipment (10 marks)

Answer 1

a) Bad debt written off refers to an outstanding loan that cannot be recovered and thus must be written off while provision for doubtful dept is an estimate of amount of bad debt expected to arise from accounts receivable and has been issued but not yet collected.

b) Cash flow statement is necessary to any business because it helps to measure profitability of the business and also evaluate the company's ability to pay its expenses. In simple terms, a cash flow statement evaluates a company's financial health.

c) Cost of introducing a property plant and equipment such as adverting and promotional activities should not be included in the initial cost as they should be considered during preparation of profit and loss statement.