BAD DEBTS AND DOUBTFUL DEBTS

In the trial balance, the balance in the allowance for doubtful debts account is

• not shown as it is part of account receivable

• shown as a debit item

• shown as credit item

• generally not shown as it is part of the current assets

The allowance for doubtful debts is created

• when entities with accounts receivable terminate their business

• to provide for the possibility of bad debt

• to write off bad debt

• to provide for a reduction in gross profit

Mine Ent had a balance on its allowance for doubtful debts of RM26,250 as at 31 December 20X2. Allowance for doubtful debts was estimated at 5% on account receivable. On 31 December 20X3, the balance of its net accounts receivable was RM 550,000. Calculate the amount of doubtful debts to be shown in the SoPL for the year ending 31 December 20X3

• RM12,500

• RM11,250

• RM1,250

• RM1,125

As at 31 December 20X3, the balance of the allowance for doubtful debts was RM15,000. If the estimated allowance for doubtful debts is 4% on accounts receivable of RM400,000, what is the adjustment needed for the allowance for doubtful debts?

• RM5,000

• RM1,000

• RM7,000

• RM3,000

Which of the following statements is true regarding the treatment of allowance for doubtful debts?

• It increases the net income

• It is recorded as an expense in the income statement

• It is a liability on the balance sheet

• It is not considered in the calculation of net profit

When a specific account is deemed uncollectible, the entry to write off the account involves

• debiting allowance for doubtful debts and crediting bad debt expense

• debiting the allowance for doubtful debts and crediting accounts receivable

• debiting accounts receivable and crediting cash

• debiting bad debt expense and crediting allowance for doubtful debts

Accounts Receivable is a current asset. Under which classification is Allowance for Doubtful Debts?

• A contra account to Accounts Receivable

• Operational Expenses

• Other Expenses

• A contra account to Sales

What effect does bad debts have on debtors?

• it increases debtors

• it decreases debtors

• it has no effect on debtors

• none of the above

State one causes of bad debts :

Allowance method is a method of accounting for bad debts that involves making provision or estimation of the uncollectible debts at the end of the accounting period.

• True

• False