Test: Journal Entries - 3 - Commerce MCQ

When a debt becomes bad and doubtful the following entry is passed:
Bad Debts A/c Dr.
To Debtors A/c
( Being bad debts written off)

Recovery of bad debts written off previously will be credited to profit and loss A/c because it is an income. 

To calculate the required provision for doubtful debts as of 31.3.09:

Given:

• Provision for bad debts as on 1.4.08 = Rs. 1,000
• During the year 2008-09, there were no bad debts.
• Debtors as on 31.3.09 = Rs. 90,000
• Provision for bad debts required @ 1%

Step-by-step calculation:

1. Calculate the required provision for doubtful debts as on 31.3.09: Provision required = 1% of Debtors as on 31.3.09 = 1% of Rs. 90,000 = Rs. 900

2. Determine the adjustment needed in the provision account:

   • Opening balance of Provision for bad debts (1.4.08) = Rs. 1,000
   • Required provision as on 31.3.09 = Rs. 900
   • Adjustment required = Rs. 900 - Rs. 1,000 = Rs. -100 (a decrease in provision)

Journal entry to adjust Provision for Doubtful Debts on 31.3.09:

The provision is being reduced, so we credit Provision for Doubtful Debts.

Option 2 correctly represents this adjustment:

Provision for Doubtful debts Dr. 100 To P&L A/c 100

This entry reflects the decrease in the provision for bad debts from the opening balance to the required amount as of the end of the period. Therefore, Option 2 is the correct journal entry to pass on 31.3.09.

• Total Assets = Capital + Liabilities
• Here, Capital = Rs. 75,000
• Liabilities = Rs. 25,000
• Total Assets = Rs. 75,000 + Rs. 25,000 = Rs. 1,00,000

• 1. Rs. 1,00,000

Assets are classified as Current Assets and Fixed Assets.
Fixed Assets:
Office Furniture & Equipment
Freehold Land & Building
Plant & Machinery
Current Assets:
Stock of Raw Material

purchases account
Good taken by the proprietor for domestic account should be credited to purchases account.

When the proprietor withdraws goods for personal use of Rs 10,000 it should be credited/deducted from the stock while calculating cost of goods sold and hence are deducted from purchases.  

Correct Answe- Option c

explanation:

• a) Cash Account – Real account (asset).
• b) Investment Account – Real account (asset).
• d) Outstanding Rent Account – Real account (liability, as it represents an obligation that carries forward).
• c) Purchases Account – Nominal account (expense account, closed at the end of the accounting period).