Skip to content

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

Under Indian accounting practice taught at CMA Foundation level, a provision for discount on debtors is created to cover discount that is expected to be allowed to:

A provision for discount on debtors is made for cash discount expected to be allowed to good debtors who pay within the discount period. It is not made for insolvent or written-off debtors, nor for creditors, because discount on those does not arise on collectible receivables.

  1. AGood debtors who are likely to pay within the discount periodCorrect
  2. BDebtors who have already been declared insolvent
  3. CCreditors who are paid before the due date
  4. DDebtors whose balances have been written off as bad debts

Explanation

The provision for discount on debtors is meant for cash discount likely to be allowed to debtors who will settle promptly. It is therefore computed on good debtors only, not on insolvent or written-off balances. Discount from creditors relates to purchases, not to this provision.

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