Skip has been informed that one of the trade receivables, Chelsea Freight, has ceased trading and is unlikely to pay any of its business debts. Chelsea Freight owes the business £2,000 and this amount should not be written off as a bad debt in line with the prudence concept.

Question

Quizplus · Accepted Answer

The prudence concept requires that potential losses, such as bad debts, be recognized as soon as they are anticipated. Therefore, the £2,000 owed by Chelsea Freight should be written off as a bad debt.

Skip Has Been Informed That One of the Trade Receivables