PRC-1 · Chapter 5 · Question 1 of 100
Which fundamental accounting concept requires a business to create an allowance for doubtful debts even before an actual loss has occurred?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Prudence concept
Explanation
The prudence concept dictates that assets should not be overstated. By creating an allowance for doubtful debts, a business anticipates probable future losses and ensures its receivables are reported at a realistic, realizable value.
More Bad and Doubtful Debts MCQs
- Q3Which of the following scenarios best describes a situation where an account should be classified as a 'Bad Debt' rather than a 'Doubtful…
- Q4What is the correct double-entry journal record to write off a confirmed irrecoverable (bad) debt?
- Q5Which of the following statements regarding 'Good Debts' and 'Doubtful Debts' is completely correct?
- Q6What is the correct journal entry to record a year-end INCREASE in the general allowance for doubtful debts?
- Q7If an entity determines that its required closing allowance for doubtful debts is lower than its opening balance, what is the journal…