PRC-1 · Chapter 5 · Question 62 of 100
If a business decides to create a specific allowance of 100% against a customer's debt of Rs. 10,000, does this action physically reduce the 'Gross Trade Receivables' balance in the ledger?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) No, the gross balance remains unchanged until the debt is formally written off.
Explanation
Creating an allowance (even a 100% specific allowance) creates a contra-asset account. The gross receivables balance in the ledger remains unchanged until management formally decides to write the debt off completely.
More Bad and Doubtful Debts MCQs
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