Skip to content

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

Sundaram & Co. has an opening provision for doubtful debts of Rs 8,000. During the year, bad debts of Rs 3,000 were written off. Closing debtors are Rs 90,000 and the required provision is 6% of closing debtors. What amount will be debited to the Profit and Loss Account for the provision (excluding the bad debts expense)?

The amount is Rs 2,600. The required provision of Rs 5,400 is less than the opening provision of Rs 8,000, so the excess of Rs 2,600 is written back to Profit and Loss.

  1. ARs 5,400
  2. BRs 2,600Correct
  3. CRs 2,400
  4. DRs 5,600

Explanation

Required closing provision = 6% of 90,000 = 5,400. Opening provision = 8,000. Since the required provision is lower, the difference of 2,600 is a reduction, so it is credited to Profit and Loss. Hence the P&L effect is a credit of Rs 2,600, not a debit.

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