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

Under the accounting treatment of Provision for Doubtful Debts, the provision created at the year-end is charged to which account?

The provision for doubtful debts is charged to the Profit and Loss Account because it is an estimated expense of the current year. The entry debits Profit and Loss and credits the Provision account, leaving the debtors balance unchanged in the books.

  1. ADebtors Account
  2. BProfit and Loss AccountCorrect
  3. CBad Debts Recovered Account
  4. DCapital Account directly

Explanation

A provision for doubtful debts is an estimated loss of the current year. It is debited to the Profit and Loss Account and credited to the Provision account. Debiting Debtors would wrongly reduce the debtors balance, whereas the provision is shown separately.

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