Multiple choice

C's Trial Balance provides you the following information: Bad debts Rs. 800, Provisions for doubtful debts Rs. 2, 000. It is desired to maintain a Provision for doubtful debts of Rs. 1, 000. The accounting treatment of these adjustments is

  1. Rs. 1, 800 to be debited to the profit to the Profit & Loss Account

  2. Rs. 200 to be credited to the profit to the Profit & Loss Account

  3. Rs. 200 to be debited to the profit to the Profit & Loss Account

  4. Rs. 4, 200 to be debited to the profit to the Profit & Loss Account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Current provision for doubtful debts is Rs. 2,000, desired provision is Rs. 1,000, so we reduce the provision by Rs. 1,000 (credit to P&L). Bad debts of Rs. 800 are written off (debit to P&L). Net effect: Rs. 800 debit - Rs. 1,000 credit = Rs. 200 credit to Profit & Loss Account. Option B correctly shows this credit.

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