Accounting Chapter 13 - Past Year MCQ

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.

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

Why would a business record the amount owing by a credit customer as an irrecoverable debt?

• The customer has gone out of business.
• The customer has liquidity problems.
• The customer is making a loss.
• The customer is not satisfied with the goods.

Anji maintains a provision for doubtful debts at 5% of the trade receivables at the end of each financial year. At the start of the financial year, the trade receivables were $2000. At the end of the financial year, the trade receivables were $4500. Which entry would be made in the income statement for the financial year?

• $125 as an expense
• $125 as an income
• $325 as an expense
• $325 as an income

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?

• DR income statement | CR Tahir
• DR irrecoverable debts | CR income statement
• DR irrecoverable debts | CR Tahir
• DR Tahir | CR irrecoverable debts

A book-keeper made the following ledger entry. DR bank account CR debts recovered Which transaction has been recorded?

• A credit customer has paid his account by the due date.
• A late payment has been received for a debt not yet written off.
• A payment has been received for a debt that had been written off.
• An irrecoverable debt has been written off.

The following accounts appeared in the ledger of Delta Limited. How had the total of trade receivables and the rate of provision for doubtful debts changed by the end of the year?

• Trade receivables - decreased | Rate of provision for doubtful debts - decreased
• Trade receivables - decreased | Rate of provision for doubtful debts - increased
• Trade receivables - increased | Rate of provision for doubtful debts - decreased
• Trade receivables - increased | Rate of provision for doubtful debts - increased

A business maintains a provision for doubtful debts of 5% of trade receivables. The balance on the provision for doubtful debts account on 31 December 2018 was $2700. On 31 December 2019 the trade receivables amounted to $50 000. How will the provision for doubtful debts be recorded on 31 December 2019?

• Provision for doubtful debts - credit 200 | Income statement - add 200 to gross profit
• Provision for doubtful debts - credit 200 | Income statement - less 200 to gross profit
• Provision for doubtful debts - debit 200 | Income statement - add 200 to gross profit
• Provision for doubtful debts - debit 200 | Income statement - less 200 to gross profit

Peter sold goods on credit to Ann in 2009. In October 2010 Peter wrote off the amount owed by Ann as a bad debt. What entries must Peter make in his ledger to write off the bad debt?

• DR Ann | CR Bad debts
• DR Ann | CR Sales
• DR Bad debts | CR Ann
• DR Sales | CR Ann

Maria maintains a provision for doubtful debts at 5% of the trade receivables (debtors) at the end of each financial year. On 31 December 2008 the trade receivables (debtors) owed $25 000 and on 31 December 2009 the trade receivables (debtors) owed $20 000. How much will appear in Maria’s income statement (profit and loss account) for the year ended 31 December 2009?

• $250 credit
• $250 debit
• $1000 credit
• $1000 debit