Chapter 13 Provision for doubtful debts

A decrease in the provision for doubtful debts would result in ______________.

• a reduction in net profit (profit for the year)

• an increase in net profit (profit for the year)

• a reduction in gross profit

• an increase in gross profit

Why do we need to substract the provision for doubtful debts over the trade receivables/ debtors balance in a statement of financial position/ balance sheet?

• because that is the formula

• because the debtors were found to be bad

• because the debtors amount is too high

• because we apply the concept of prudence

An increase in the provision for doubtful debts would result in _______________.

• an increase in revenue

• an increase in expenses

• a decrease in revenue

• a decrease in expenses

What is the total provision for doubtful debts at the end of 2016?

• $1 750

• $2 000

• $2 250

• $3 750

The effect of provision for doubtful debts on the income statement in 2017 is

• an increase of $250

• a decrease of $250

• an increase of $500

• a decrease of $500

The accounting entry for writing off a bad debt is

• Dr Cash

  Cr Irrecoverable debt

• Dr Provision for doubtful debts

  Cr Irrecoverable debt

• Dr Irrecoverable debt

  Cr Trade payables

• Dr Irrecoverable debt

  Cr Trade receivables

What adjusting entry is necessary to record a decrease in

provision for doubtful debts?

• Dr. Income statement

  Cr. Provisions for doubtful debts

• Dr. Cash

  Cr. Provisions for doubtful debts

• Dr. Provisions for doubtful debts

  Cr. Income statement

• Dr. Trading A/c;

  Cr. Provisions for doubtful debts

Alternative term for irrecoverable debts

• Bad debts

• depreciation

Alternative term for trade receivables

• creditor

• debtor

Purpose of preparing a statement of financial position is to

• monitor liquidity position of the business.

• measure the profitability of the business