PRC-1 · Chapter 10 · Question 41 of 100
An entity has an Opening Allowance for Doubtful Debts of Rs. 5,000. Based on year-end receivables, the required Closing Allowance is Rs. 3,000. What is the accounting entry to record this change?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Debit Allowance for Doubtful Debts Rs. 2,000, Credit Bad Debts Expense (or Other Income) Rs. 2,000
Explanation
The allowance needs to decrease from 5,000 to 3,000. A decrease in a provision acts as income or a reduction of expense. The entry debits the Allowance account (reducing its credit balance) and credits the income statement.
More Preparation of Financial Statements MCQs
- Q43Under the accrual basis of accounting, revenue is recognized when:
- Q44The primary difference between a Trial Balance and an Adjusted Trial Balance is that the Adjusted Trial Balance:
- Q45When preparing final accounts, the value of Closing Inventory is typically extracted from:
- Q46How are 'Drawings' made by the owner treated in the financial statements?
- Q47A business has opening capital of Rs. 100,000, closing capital of Rs. 150,000, and drawings during the year of Rs. 20,000. Assuming no…