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

Mehta & Co. has a trial balance showing Debtors ₹1,80,000, Bad Debts ₹6,000 and Provision for Doubtful Debts (opening) ₹9,000. Adjustment: further bad debts ₹4,000 to be written off, and the provision is to be kept at 5% of remaining debtors. What is the amount charged to the Profit and Loss Account for bad debts and provision together?

The net charge is ₹9,800. Total bad debts are ₹10,000, and the provision falls from ₹9,000 to ₹8,800 (5% of ₹1,76,000), giving a ₹200 reduction that is set off against the bad debts expense.

  1. A₹10,000
  2. B₹9,800
  3. C₹10,800Correct
  4. D₹11,000

Explanation

Total bad debts = 6,000 + 4,000 = 10,000. Debtors after write-off = 1,76,000; new provision at 5% = 8,800. Opening provision is 9,000, so the net decrease of 200 is credited. Net charge = 10,000 − 200 = 9,800. So the correct answer is 9,800, not 10,800.

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