Financial Statement Reporting

What is the purpose of providing for doubtful debts?

• To ensure that profits are not overstated

• To calculate the company's market share

• To record the company's investment portfolio

• To prepare the cash flow statement

What is the purpose of making entries for bad and doubtful debts in financial statements?

• To ensure that the amount of accounts receivable shown in the Statement of Financial Position is accurate.

• To increase the profit figure in the Statement of Profit or Loss.

• To record the total amount of goods sold on credit.

• To track the inventory levels of the business.

When is an account typically declared bad?

• Immediately after the sale is made.

• When the statement of account is sent to the customer.

• Before the end of the accounting period.

• After the customer fails to settle their account within the next 30 days after being reminded.

What happens to the profit figure in the Statement of Profit or Loss when an expense for a bad debt is brought to account?

• The profit figure increases.

• The profit figure remains unchanged.

• The profit figure is reduced.

• The profit figure is doubled.

What is the purpose of creating a Provision for Doubtful Debts account?

• To estimate present accounts receivable that are unlikely to be paid in the next accounting period.

• To record the actual amount of debts that have been written off as bad.

• To increase the revenue for the current accounting period.

• To directly adjust the cash balance to reflect potential losses.

Which of the following is considered a negative asset account?

• Bad and Doubtful Debts

• Provision for Doubtful Debts

• Profit or Loss Summary

• Accounts Receivable Control

According to the ageing accounts receivable method, accounts that are over 90 days overdue are:

• Written off immediately as bad debts.

• Not considered overdue until six months have elapsed.

• Considered doubtful and reasonable steps are taken to secure the money.

• Automatically transferred to the Profit or Loss Summary account.

What is the purpose of a Provision for Doubtful Debts account?

• To track the amount of debt that is expected to be paid

• To estimate the amount of accounts receivable that will not be collected

• To calculate the interest on overdue accounts

• To record the total amount of sales made on credit

What is the result when a debt has been provided for as a doubtful debt and it ultimately becomes bad?

• The bad debt is written off against the Accounts Receivable account

• The bad debt is transferred to the Profit or Loss Summary account

• The bad debt is offset against the provision account

• The bad debt remains in the Accounts Receivable account

Which of the following is NOT one of the four steps to be followed when accounting for bad and doubtful debts?

• Write off bad debts

• Balance day adjustments

• Transfer the bad debt to the Accounts Receivable account

• Close off the Bad and Doubtful Debts expense account