PRC-1 · Chapter 5 · Question 56 of 100
If the required closing allowance for doubtful debts is Rs. 12,000, but the opening balance was Rs. 20,000, what is the net impact of the adjusting entry on the Statement of Profit or Loss?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) An income (or reduction in expense) of Rs. 8,000
Explanation
Because the required closing allowance is lower than the opening balance, the adjustment decreases the allowance by Rs. 8,000. This is credited to the Bad Debt Expense (or a separate income account), effectively increasing the net profit.
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