Paper 1 · November 2021 · Bad debts and provisions
The following account appeared in the General ledger of a trader.
Provision for bad and doubtful debts account
Dr 2017: December 31 Income statement 300; 31 Balance c/d 900; total 1 200
Cr 2017: January 1 Balance b/d 1 200; total 1 200
What is meant by the debit entry of $300 on 31 December 2017?
Dr 2017: December 31 Income statement 300; 31 Balance c/d 900; total 1 200
Cr 2017: January 1 Balance b/d 1 200; total 1 200
What is meant by the debit entry of $300 on 31 December 2017?
ABad debts written off at the end of the year.
BCreation of a Bad and doubtful debts account.
CDecrease in provision for bad and doubtful debts.
DIncrease in provision for bad and doubtful debts.
Explanation
The provision falls from 1 200 to 900; the 300 difference is debited to the provision and credited to the income statement, a decrease in provision.
ZIMSEC Principles of Accounting 4051/1, November 2021, Q40