PRC-1 · Chapter 5 · Question 55 of 100
At year-end, 'Alpha Corp' requires a closing allowance for doubtful debts of Rs. 25,000. The opening balance of the allowance account was Rs. 18,000. What is the required adjusting entry?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Debit Bad Debt Expense Rs. 7,000; Credit Allowance for Doubtful Debts Rs. 7,000
Explanation
The allowance must be increased by Rs. 7,000 (25,000 - 18,000). This is recorded by recognizing an additional expense (Debit Bad Debt Expense) and increasing the contra-asset (Credit Allowance for Doubtful Debts).
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