CMA Foundation · Fundamentals of Financial and Cost Accounting · Adjustment Entries and Rectification of Errors
Trial balance of Mehta Traders shows Sundry Debtors of ₹2,00,000. Bad debts of ₹10,000 are yet to be written off, and a provision for doubtful debts of 5% on the remaining debtors is to be created (no opening provision). What is the amount to be debited to Profit and Loss Account for the provision?
The provision is ₹9,500. The unrecorded bad debts of ₹10,000 are first deducted from debtors of ₹2,00,000, leaving ₹1,90,000, and 5% of this balance is the provision to be charged to Profit and Loss Account.
- A₹9,500Correct
- B₹10,000
- C₹9,000
- D₹19,500
Explanation
Debtors after writing off bad debts = 2,00,000 − 10,000 = 1,90,000. Provision at 5% = ₹9,500. Using 5% on ₹2,00,000 gives ₹10,000, which ignores the bad debt adjustment. ₹19,500 adds bad debts to the provision, which is a separate charge.
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