CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Treatment of Bad Debts and Provision for Doubtful Debts
Under the usual treatment of a provision for discount on debtors, on which amount is the provision calculated?
The provision for discount on debtors is calculated on good debtors, that is, debtors remaining after deducting bad debts and the provision for doubtful debts, because discount is allowed only to debtors who are expected to pay.
- ATotal debtors before deducting bad debts
- BGood debtors after deducting bad debts and the provision for doubtful debtsCorrect
- CTotal sales for the year
- DTotal debtors plus the provision for doubtful debts
Explanation
Discount is expected only from debtors who will actually pay. So bad debts are written off first, then the provision for doubtful debts is made, and the discount provision is computed on the remaining good debtors. Using gross debtors would overstate the provision.
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