Skip to content

CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Treatment of Bad Debts and Provision for Doubtful Debts

A firm's trial balance shows Bad Debts Rs 2,000 (debit) and Bad Debts Recovered Rs 600 (credit). Which statement about presenting them in the Profit and Loss Account is correct?

Bad debts are shown as an expense on the debit side of the Profit and Loss Account, while bad debts recovered is shown as an income on the credit side. Recovery is a gain on a previously written-off debt, not a deduction from debtors or sales.

  1. ABad debts are shown as an expense and bad debts recovered as an incomeCorrect
  2. BBoth are shown on the debit side as expenses
  3. CBad debts recovered is deducted from debtors in the balance sheet
  4. DBad debts are deducted from sales in the trading account

Explanation

Bad debts are a revenue loss debited to Profit and Loss. Bad debts recovered is a credit balance and is an income, shown on the credit side or deducted from bad debts. It is not a balance sheet adjustment to debtors.

Did you get it right without looking?

One question tells you little. A timed set on Accounting Treatment of Bad Debts and Provision for Doubtful Debts shows your real accuracy, how long you take and where you lose marks.

Practise Accounting Treatment of Bad Debts and Provision for Doubtful DebtsFree diagnostic mock

More Accounting Treatment of Bad Debts and Provision for Doubtful Debts questions