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A bad debt of ₹1,560 had not been written off and provision for doubtful debts should have been maintained at 10% of Trade receivables which are shown in the trial balance at 23,390 with a credit provision for bad debts at 2,320.?
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A bad debt of ₹1,560 had not been written off and provision for doubtf...
Understanding the Situation
In financial accounting, bad debts and provisions for doubtful debts are crucial for accurately reflecting a company's financial position. The scenario presented involves a bad debt of ₹1,560 that has not been accounted for, alongside the need for a provision for doubtful debts at 10% of trade receivables.
1. Bad Debt Write-Off
- A bad debt refers to an amount that is not expected to be collected.
- In this case, the ₹1,560 should be written off to ensure the accounts reflect true receivables.
2. Provision for Doubtful Debts
- The provision for doubtful debts is calculated at 10% of trade receivables.
- Given trade receivables of ₹23,390, the required provision is:
Provision = 10% of ₹23,390 = ₹2,339
3. Existing Provision
- The trial balance shows a credit provision for bad debts of ₹2,320.
- Thus, the adjustment needed is:
Adjustment = Required Provision - Existing Provision = ₹2,339 - ₹2,320 = ₹19
4. Adjusting Entries
- To accurately reflect the financial position, the following entries must be made:
- Write off the bad debt of ₹1,560, impacting the profit and loss account.
- Increase the provision for doubtful debts by ₹19 through an expense account.
Conclusion
By addressing the bad debt and adjusting the provision for doubtful debts, the financial statements will provide a clearer picture of the company's asset quality and enhance the reliability of the financial information presented to stakeholders.
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A bad debt of ₹1,560 had not been written off and provision for doubtful debts should have been maintained at 10% of Trade receivables which are shown in the trial balance at 23,390 with a credit provision for bad debts at 2,320.?
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A bad debt of ₹1,560 had not been written off and provision for doubtful debts should have been maintained at 10% of Trade receivables which are shown in the trial balance at 23,390 with a credit provision for bad debts at 2,320.? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about A bad debt of ₹1,560 had not been written off and provision for doubtful debts should have been maintained at 10% of Trade receivables which are shown in the trial balance at 23,390 with a credit provision for bad debts at 2,320.? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A bad debt of ₹1,560 had not been written off and provision for doubtful debts should have been maintained at 10% of Trade receivables which are shown in the trial balance at 23,390 with a credit provision for bad debts at 2,320.?.
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