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

In the Balance Sheet of a sole proprietor, the provision for discount on debtors is normally shown as:

The provision for discount on debtors is shown as a deduction from sundry debtors in the Balance Sheet, after the provision for doubtful debts. It is not added to creditors or deducted from capital, and its charge appears in the Profit and Loss Account.

  1. AA deduction from sundry debtors, after the provision for doubtful debtsCorrect
  2. BAn addition to sundry creditors
  3. CA deduction from capital
  4. DAn item under direct expenses in the Trading Account

Explanation

The provision for discount is deducted from sundry debtors on the asset side, after deducting bad debts and the doubtful debts provision. It is not a liability or a trading expense; its charge goes to the Profit and Loss Account.

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