PRC-1 · Chapter 5 · Question 97 of 100
Opening allowance for doubtful debts was Rs. 300. Closing receivables are Rs. 10,000. A bad debt of Rs. 1,000 was written off before calculation of the allowance, but the accountant missed the written off amount while calculating the 5% closing allowance. What is the impact on profit due to this mistake?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Profit is understated by Rs. 50
Explanation
Correct receivables for allowance = 10,000 - 1,000 = 9,000. Correct allowance = 5% of 9,000 = 450. Incorrect allowance calculated = 5% of 10,000 = 500. Allowance (and expense) is overstated by 50, causing Profit to be understated by Rs. 50.
More Bad and Doubtful Debts MCQs
- Q99Journal entry to record a decrease in allowance during the year is:
- Q100At 1 January 2017, the allowance for receivable of Sidra was Rs. 35,000. During the year ended 31 December 2017, debts totaling Rs. 15,000…
- Q1Which fundamental accounting concept requires a business to create an allowance for doubtful debts even before an actual loss has occurred?
- Q2What is the specific nature of the 'Allowance for Doubtful Debts' account in the general ledger?
- Q3Which of the following scenarios best describes a situation where an account should be classified as a 'Bad Debt' rather than a 'Doubtful…