PRC-1 · Chapter 5 · Question 15 of 100
'Sigma Retail' has an opening allowance for doubtful debts of Rs. 15,000. The required closing allowance is calculated to be Rs. 10,000. Which journal entry correctly processes this adjustment?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Debit Allowance for Doubtful Debts Rs. 5,000, Credit Bad Debt Expense Rs. 5,000
Explanation
The allowance must decrease from 15,000 to 10,000. A decrease of Rs. 5,000 requires debiting the Allowance account and crediting the Bad Debt Expense account, which increases net profit.
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