PRC-1 · Chapter 5 · Question 75 of 100
At the start of the year, the allowance for doubtful debts was Rs. 15,000. At year-end, gross receivables are Rs. 300,000. The business decides to create a 6% allowance. What is the journal entry for the adjustment?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Debit Bad Debt Expense Rs. 3,000; Credit Allowance Rs. 3,000
Explanation
Required closing allowance = 6% x 300,000 = 18,000. Opening is 15,000. The allowance must increase by 3,000. Entry: Debit Expense, Credit Allowance.
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