Unit 3 Topic 2 Week 1

What are balance day adjustments?

• Entries made at balance day to calculate expenses

• Entries made at balance day to match assets with liabilities

• Entries made at balance day to calculate profit

• Entries made at balance day to match revenues with expenses

What is the purpose of the provision for doubtful debts?

• To overstate the value of assets on the SOFP

• To underestimate the profit figure in the SOPL

• To reduce the likelihood of overstatement of assets

• To increase the amount of expenses in anticipation of any bad debts

What is the impact, on each statement, if a bad debt of $500 is not recognized on balance day?

• Overstated liabilities on the SOFP

• Understated expenses in the SOPL

• Understated assets on the SOFP

• Overstated profit in the SOPL

What is the effect of creating a provision for doubtful debts on the expense account Bad and Doubtful Debts?

• Decreases the amount of expenses in anticipation of any bad debts

• Increases the likelihood of overstatement of assets

• Increases the Accounts Receivable Control amount on the SOFP

• Creates a provision account which is a positive asset account

How is the provision amount calculated based on past experience?

• By using an aged AR report to establish the expected percentage per period

• By calculating the total AR without any estimation

• By estimating a percentage figure of bad debts from current AR

• By estimating a fixed amount for bad debts

What is the meaning of the term 'doubtful debt'?

• A debt that is certain to be recovered

• A debt that is not yet due

• A debt that is unlikely to be recovered

• A debt that is fully paid

How is a bad debt offset against the provision?

• By decreasing the provision amount

• By increasing the provision amount

• By writing off the provision completely

• By not affecting the provision at all

What is the purpose of the Bad and Doubtful Debts account?

• To decrease the amount of expenses in anticipation of any bad debts

• To increase the value of assets on the SOFP

• To record all the debts that are doubtful

• To estimate the amount of accounts receivable unlikely to pay their debts

What is the accounting concept that underpins the need for balance day adjustments?

• Consistency concept

• Accrual concept

• Realization concept

• Matching concept

How is the provision amount calculated based on an aged AR report?

• By calculating the total AR without any estimation

• By establishing the expected percentage per period to turn to a bad debt

• By using a percentage figure of bad debts from current AR

• By estimating a fixed amount for bad debts