Irrecoverable Debts and Provision for Irrecoverable Debts

The following accounts appeared in the ledger of Delta Limited.

How had the total of trade receivables and the rate of provision for doubtful debts changed by

the end of the year?

• total of trade receivables decreased

  rate of provision for doubtful debts decreased

• total of trade receivables decreased

  rate of provision for doubtful debts increased

• total of trade receivables increased

  rate of provision for doubtful debts decreased

• total of trade receivables increased

  rate of provision for doubtful debts increased

Why does a business maintain a provision for doubtful debts account?

• to apply the accounting principle of prudence

• to avoid profit for the year being understated

• to have an accurate forecast of debts which will be uncollectible

• to reduce the expense of irrecoverable debts in the future

Shilpa’s financial year ends on 30 April. On 31 March 2021 she wrote off a debt owed by Tahir as irrecoverable.

Which entry did Shilpa make on 31 March 2021?

• debit income statement

  credit Tahir

• debit irrecoverable debts

  credit income statement

• debit irrecoverable debts

  credit Tahir

• debit Tahir

  credit irrecoverable debts

On 2 April Nina received a cheque from Zaffar, a credit customer. On 12 April the cheque was returned unpaid by the bank.

What entry would Nina make on 12 April?

• account to be debited irrecoverable debts

  account to be credited bank

• account to be debited irrecoverable debts

  account to be credited Zaffer

• account to be debited provision for doubtful debts

  account to be credited Zaffer

• account to be debited Zaffer

  account to be credited bank

Which items are deducted from the gross profit when calculating the profit for the year?

1 balance on the provision for doubtful debts account

2 carriage paid on goods supplied to customers

3 drawings made by the owner during the year

4 wages paid to employees during the year

• 1, 2 and 3

• 1 and 4

• 2 and 3 only

• 2 and 4

Beena maintains a provision for doubtful debts of 3% of the trade receivables at the end of each financial year.

On 1 September 2019 the provision for doubtful debts was $900.

On 31 August 2020 the trade receivables amounted to $42 800.

Which journal entry did Beena make on 31 August 2020?

• income statement Dr 384

  provision for doubtful debts Cr 384

• income statement Dr 1284

  provision for doubtful debts Cr 1284

• provision for doubtful debts Dr 384

  income statement Cr 384

• provision for doubtful debts Dr 1284

  income statement Cr 1284

The following information is available for a business.

A provision for doubtful debts of 2% is to be made.

Which amount is recorded in the income statement for the year ended 31 December 2018?

• $570 expense

• $570 income

• $840 expense

• $840 income

Which statement is correct?

• The balance on the irrecoverable debts account is carried down to the next accounting

  period.

• The balance on the irrecoverable debts account is treated as an expense in the income

  statement.

• The balance on the provision for doubtful debts account is calculated before the deduction of

  irrecoverable debts.

• The balance on the provision for doubtful debts account is not included in a trial balance.