7707 MJ Provision for doubtful debt

Joseph sells goods on credit and maintains a provision for doubtful debts.

He wants to increase his provision for doubtful debts by $250.

Which journal entry records an increase in the provision for doubtful debts?

• A

• B

• C

• D

Why does a business maintain a provision for doubtful debts account?

• to apply the accounting principle of prudence

• to avoid profit for the year being understated

• to have an accurate forecast of debts which will be uncollectible

• to reduce the expense of irrecoverable debts in the future

On 1 April 2020 Ahmed had a provision for doubtful debts of $290. The following journal entry was made on 31 March 2021.

What was the provision for doubtful debts deducted from trade receivables in Ahmed’s statement of financial position on 31 March 2021?

• $25

• $265

• $290

• $315

Shilpa’s financial year ends on 30 April. On 31 March 2021 she wrote off a debt owed by Tahir as irrecoverable.

Which entry did Shilpa make on 31 March 2021?

• A

• B

• C

• D

Nula’s financial year ends on 31 December. She maintains a provision for doubtful debts of 5% of trade receivables.

On 1 January 2021, the provision amounted to $800. On 31 December 2021,

trade receivables owed $13 400, of which $600 was regarded as irrecoverable.

How much was the provision for doubtful debts on 1 January 2022?

• $600

• $640

• $660

• $670

Which statement about a debts recovered account is correct?

• The account is used when an amount, previously written off, is received from a customer.

• The account is used when doubtful debts are recovered.

• The balance of the account is debited to the income statement at the end of the year.

• The balance of the account is shown in the statement of financial position.

At the end of the financial year, Karim decided to increase his provision for doubtful debts.

How will this affect his income statement and the statement of financial position?

• A

• B

• C

• D

P Limited maintains a provision for doubtful debts account. On 1 April 2022, this account had a balance of $6200.

The provision should have been increased to $7400 on 31 March 2023, but this adjustment was not made.

What was the effect of this error on the retained earnings in the statement of financial position on 31 March 2023?

• overstated $1200

• overstated $7400

• understated $1200

• understated $7400

P Limited maintains a provision for doubtful debts account. On 1 April 2022, this account had a balance of $6200.

The provision should have been increased to $7400 on 31 March 2023, but this adjustment was not made.

What was the effect of this error on the retained earnings in the statement of financial position on 31 March 2023?

• overstated $1200

• overstated $7400

• understated $1200

• understated $7400

On 2 January, Razia wrote off $450 owed to her by Annette, a credit customer, as irrecoverable.

On 2 October, Annette paid $100 by cheque in part settlement of that debt.

Which entries would Razia make on 2 October?

• A

• B

• C

• D