Skip to content

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

Which statement about the provision for discount on debtors is correct as per standard treatment at CMA Foundation level?

The provision for discount on debtors is calculated on debtors remaining after deducting bad debts and the provision for doubtful debts, because only good debtors are expected to claim discount. It is created in anticipation and is deducted from debtors in the balance sheet.

  1. AIt is calculated after deducting bad debts and the provision for doubtful debts from debtorsCorrect
  2. BIt is calculated on the gross debtors before any deduction
  3. CIt is shown on the liabilities side as a trade payable
  4. DIt is created only when discount is actually allowed during the year

Explanation

Discount can be allowed only on debtors who are expected to pay, so the base is debtors less bad debts and less the provision for doubtful debts. It is deducted from debtors in the balance sheet, not shown as a payable. It is created in anticipation, not after the discount is actually allowed.

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