PRC-1 · Chapter 5 · Question 48 of 100
What is the primary reason an auditor might insist a company increases its Allowance for Doubtful Debts?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) A major customer has just filed for bankruptcy protection and their debt is still on the books.
Explanation
A major customer facing bankruptcy indicates a high probability of non-payment. To comply with prudence, the allowance must be increased to reflect this specific, identifiable risk.
More Bad and Doubtful Debts MCQs
- Q50Which of the following directly REDUCES the 'Gross Trade Receivables' balance?
- Q51Which of the following scenarios describes a situation where an account receivable should be classified as a 'Bad Debt' rather than a…
- Q52What is the primary accounting concept that justifies the creation of an 'Allowance for Doubtful Debts' before a specific customer…
- Q53When a business decides to formally write off an irrecoverable debt of Rs. 15,000, what is the standard double-entry journal record?
- Q54How is the 'Allowance for Doubtful Debts' account fundamentally classified within the general ledger?