Tag: provisions and reserves

Questions Related to provisions and reserves

While preparing final account, to make provision for discount on debtors. which of the following adjustment entry will be passed?

Provision for Discount on Debtors A/cTo Debtors A/c Dr.
Profit & Loss A/cTo Provision for Discount on Debtors A/c Dr.
Provision for Discount on Debtors A/cTo Trading A/c Dr.
Debtors A/cTo provision for Discount on Debtors A/c Dr.
accountancy provisions and reserves reserves provisions provision and reserves

  1. A

  2. B

  3. C

  4. D

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Correct Option: B

It is supposed that on $31-12-2015$, the sundry debtors are amounted to Rs. $40,000$. On the basis of past experience, it is estimated that $5\%$ of the sundry debtors are doubtful. Also suppose that during the year $2014$ actual bad debts were Rs. $1,600$. What entry will be passed to create provision for doubtful debts?

accountancy provisions and reserves reserves provisions provision and reserves

  1. Profit & Loss a/c Rs. $2,000$(Dr.) & Provision for doubtful debts A/c Rs. $2,000$(Cr.)

  2. Provision for doubtful debts A/c Rs. $2,000$(Dr.) & Profit & Loss A/c Rs. $2,000$(Cr.)

  3. Provision for doubtful debts A/c Rs. $1,600$ (Dr.) & Profit & Loss A/c Rs. $1,600$(Cr.)

  4. Profit & Loss A/c Rs. $1,600$(Dr.) & Provision for doubtful debts A/c Rs. $1,600$(Cr.)

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Correct Option: A

As per law which enterprise is required to make provisions for depreciation?

accountancy provisions and reserves reserves provisions provision and reserves

  1. Joint stock company

  2. Sole proprietor

  3. Partnership

  4. All of the above

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Correct Option: A

Consider the following data and identify the amount which will be deducted from sundry debtors in balance sheet.

Particulars Rs.
Bad debts(from trial balance) $1,600$
Provision for doubtful debts(old) $2,000$
Current years' provision(new) $800$
accountancy provisions and reserves reserves provisions provision and reserves

  1. Rs. $400$

  2. Rs. $800$

  3. Rs. $2,000$

  4. Rs. $2,400$

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Correct Option: B

If an accumulated provision for depreciation account is in use then the entries for the year's depreciation would be ________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. debit Asset Account, credit Profit and Loss Account

  2. credit Profit and Loss Account, debit Provision for Depreciation Account

  3. credit Asset Account, debit Provision for Depreciation Account

  4. credit Provision for Depreciation Account, debit Profit and Loss Account

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Correct Option: D

Which of the following statement is/are NOT correct?

accountancy provisions and reserves reserves provisions provision and reserves

  1. Provision for bad debts appears as a liability on the balance sheet

  2. The provision for bad debts is owed to the proprietor

  3. Bad debts could be less than the provision for bad debts

  4. Bad debts could exceed the provision for bad debts

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Correct Option: B

Pick the odd one ________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Reserve for discount on creditors is credited to profit & loss account.

  2. Provision for discount on creditors is always made.

  3. Discount on creditors should be deducted from Sunday creditors in balance sheet.

  4. Both A & C.

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Correct Option: B
Explanation:

Provision for Discount on Creditors. When the business makes prompt payments of its debts, it is bound to receive Discounts from its creditors.  A Provision for such discount is made in the current year itself so that that the discounts thus earned may be credited to the Profit and Loss Account of the current year.

Making Provision for depreciation is an example of __________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Increase in Asset & Owner's Liability

  2. Decrease in Asset & Owner's Liability

  3. Increase in Liability & Owner's Liability

  4. Decrease in Liability & Increase in Owner's Liability

  5. Increase in Liability & Decrease in Owner's Liability

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Correct Option: B
Explanation:

Provision for depreciation means wherein the depreciation of an asset is accumulated in a different account called provision for depreciation. 

Making a provision would decrease the asset and owner's equity.

The Provision for discount on debtors is calculated _______________________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Before deducting additional Bad Debts

  2. Before deducting additional discount

  3. Before deducting provision for doubts from debtors

  4. After deducting provision for doubtful debts from debtors

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Correct Option: D
Explanation:

The provision for doubtful debts is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. Later, when you identify a specific customer invoice that is not going to be paid, eliminate it against the provision for doubtful debts.

In other words, the amount of the provision for discount is calculated after deducting bad debts and provision for doubtful debts from sundry debtors. Suppose, sundry debtors total Rs. 20, 000; provision for doubtful debts is required at 5% and provision for discounts at 2 ½ %.

Total debtors account will be affected by ___________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Cash sales

  2. Credit sales

  3. B/R closing balance

  4. All of the above

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Correct Option: B
Explanation:

Credit sales are debited to the individual debtors account and credited to sales account. 

Debtors account will be effected by credit sales.