PRC-1 · Chapter 5 · Question 58 of 100
What is the specific difference between a 'Specific Allowance' and a 'General Allowance' for doubtful debts?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Specific allowances target identified, individual high-risk customers, while general allowances apply a percentage to the remaining pool of standard receivables.
Explanation
A specific allowance is created when a known customer is in trouble (e.g., dispute, financial crisis). A general allowance is applied to all other 'good' debts based on historical default probabilities.
More Bad and Doubtful Debts MCQs
- Q60'Beta Corp' has a Gross Receivables balance of Rs. 400,000. A debt of Rs. 15,000 is to be written off. A specific allowance of Rs. 20,000…
- Q61A business wrote off Rs. 25,000 in bad debts during the year. The opening allowance was Rs. 30,000. The required closing allowance is Rs…
- Q62If a business decides to create a specific allowance of 100% against a customer's debt of Rs. 10,000, does this action physically reduce…
- Q63An 'Aging Analysis' schedules outstanding receivables into time brackets (e.g., 30 days, 60 days, 90+ days). Which bracket typically…
- Q64An accountant wrote off a bad debt of Rs. 4,000 by debiting Bad Debt Expense and incorrectly crediting Accounts Payable instead of Trade…