BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Debit profit and loss RM1, 410; credit allowance for provision for doubtful debts RM1, 410.
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Debit profit and loss RM410; credit allowance for provision for doubtful debts RM410.
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Debit allowance for provision for doubtful debts RM1, 000; credit profit and loss RM1, 000
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Debit allowance for provision for doubtful debts RM1, 500; credit profit and loss RM1, 500
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Detailed explanation-1: -The provision for doubtful debts is an estimated amount of bad debts that are likely to arise from the accounts receivable that have been given but not yet collected from the debtors. It is similar to the allowance for doubtful accounts.
Detailed explanation-2: -In order to receive payment faster from their customers, businessman provides a discount to those customers who pay before maturity of the debt. So, at the end of the year, we make provision for next year losses due to discount allowed. Thus, this provision will be known as provision for discount on debtors.
Detailed explanation-3: -When you create an allowance for doubtful accounts, you must record the amount on your business balance sheet. If the doubtful debt turns into a bad debt, record it as an expense on your income statement.
Detailed explanation-4: -This provision is created by debiting the Profit and Loss Account for the period. The nature of various debts decides the amount of Doubtful Debts. The amount so debited in the Profit and Loss Account and an Account named “Provision for Doubtful Debts Account” is credited with the amount.