Skip to content

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

In the books of Sunita Enterprises, the provision for doubtful debts account has an opening balance of ₹9,000. At the year end, the required closing provision is ₹6,500. What is the correct journal entry?

Because the required provision of ₹6,500 is lower than the existing ₹9,000, the excess of ₹2,500 is written back. The entry debits Provision for Doubtful Debts account and credits Profit and Loss account with ₹2,500.

  1. AProfit and Loss A/c Dr ₹2,500 to Provision for Doubtful Debts A/c
  2. BProvision for Doubtful Debts A/c Dr ₹2,500 to Profit and Loss A/cCorrect
  3. CBad Debts A/c Dr ₹6,500 to Provision for Doubtful Debts A/c
  4. DProvision for Doubtful Debts A/c Dr ₹6,500 to Debtors A/c

Explanation

The provision is being reduced from ₹9,000 to ₹6,500, so ₹2,500 is no longer needed. The Provision account is debited and the profit and loss account credited with ₹2,500. The first option would increase the provision, which is the opposite of what is needed.

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