PRC-1 · Chapter 5 · Question 51 of 100
Which of the following scenarios describes a situation where an account receivable should be classified as a 'Bad Debt' rather than a 'Doubtful Debt'?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) A customer has been officially declared bankrupt and the liquidator confirmed no payout will be made.
Explanation
A debt becomes a 'bad debt' when it is clearly identified as not being collectible with certainty. Bankruptcy with a confirmed zero payout represents a definitive loss, whereas financial difficulties or disputes only make the debt 'doubtful'.
More Bad and Doubtful Debts MCQs
- 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?
- Q55At year-end, 'Alpha Corp' requires a closing allowance for doubtful debts of Rs. 25,000. The opening balance of the allowance account was…
- Q56If 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…
- Q57An irrecoverable debt of Rs. 5,000 that was formally written off in the previous year is unexpectedly paid by the customer via cheque…