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Test: Banking Company Accounts - B Com MCQ


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10 Questions MCQ Test - Test: Banking Company Accounts

Test: Banking Company Accounts for B Com 2024 is part of B Com preparation. The Test: Banking Company Accounts questions and answers have been prepared according to the B Com exam syllabus.The Test: Banking Company Accounts MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Banking Company Accounts below.
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Test: Banking Company Accounts - Question 1
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What is the primary purpose of the provision for doubtful debts in accrual basis accounting?

Detailed Solution for Test: Banking Company Accounts - Question 1
The provision for doubtful debts is used to estimate the amount of bad debts that will arise from accounts receivable. It allows companies to recognize an expense for probable bad debts as soon as invoices are issued to customers, aligning with the matching principle. This helps in accurately reflecting the financial position of the company and accounting for potential losses due to non-payment of invoices.
Test: Banking Company Accounts - Question 2
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In accrual basis accounting, when is the provision for doubtful debts typically recorded?

Detailed Solution for Test: Banking Company Accounts - Question 2
The provision for doubtful debts is recorded when an invoice is issued to a customer. This practice ensures that an expense is recognized for potential bad debts as soon as revenue is recognized. It accelerates the recognition of bad debts into earlier reporting periods and helps in matching revenues with applicable expenses.
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Test: Banking Company Accounts - Question 3
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What is the purpose of eliminating a specific customer invoice against the provision for doubtful debts?

Detailed Solution for Test: Banking Company Accounts - Question 3
Eliminating a specific customer invoice against the provision for doubtful debts involves debiting the provision for doubtful debts and crediting the accounts receivable account. This adjustment helps in adjusting the accounts receivable balance by removing the specific invoice that is not going to be paid. It doesn't impact the income statement directly but rather reflects the adjustment in the balance sheet.
Test: Banking Company Accounts - Question 4
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Which term is used to describe the estimated amount of bad debt that will arise from accounts receivable?
Detailed Solution for Test: Banking Company Accounts - Question 4
The estimated amount of bad debt that will arise from accounts receivable is referred to as the "provision for doubtful debts." It is an important accounting concept used to account for potential losses due to uncollectible accounts and ensure accurate financial reporting.
Test: Banking Company Accounts - Question 5
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What is the impact of the provision for doubtful debts on the recognition of bad debts?
Detailed Solution for Test: Banking Company Accounts - Question 5
The provision for doubtful debts accelerates the recognition of bad debts. By estimating and recording potential bad debts as soon as invoices are issued, companies can account for these losses in earlier reporting periods. This helps in reflecting a more accurate financial position and aligning with the matching principle.
Test: Banking Company Accounts - Question 6
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How is the provision for doubtful debts listed in the balance sheet?
Detailed Solution for Test: Banking Company Accounts - Question 6
The provision for doubtful debts is listed in the balance sheet below the accounts receivable line item. It is an accounts receivable contra account and always has a credit balance. These two line items can be combined for reporting purposes to arrive at a net receivables figure.
Test: Banking Company Accounts - Question 7
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How does a business typically estimate the amount of bad debt for the provision for doubtful debts?
Detailed Solution for Test: Banking Company Accounts - Question 7
A business typically estimates the amount of bad debt for the provision for doubtful debts based on historical experience. By analyzing past patterns of non-payment and uncollectible accounts, the business can make an informed estimate of the potential bad debts that might arise from its accounts receivable.
Test: Banking Company Accounts - Question 8
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What is the main purpose of adjusting the provision for doubtful debts over time?
Detailed Solution for Test: Banking Company Accounts - Question 8
The main purpose of adjusting the provision for doubtful debts over time is to align it with the ongoing best estimate of bad debts. This adjustment ensures that the provision accurately reflects potential losses due to bad debts. If the provision appears too low, an additional charge to the bad debt expense account may be needed, and if it appears too high, a reduction in the expense may be necessary.
Test: Banking Company Accounts - Question 9
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Under what circumstances is the provision for doubtful debts likely to exactly match the amount of unpaid invoices?
Detailed Solution for Test: Banking Company Accounts - Question 9
It is highly unlikely that the provision for doubtful debts will always exactly match the amount of unpaid invoices. However, if all customers pay their invoices promptly and there are no instances of non-payment, the provision for doubtful debts may closely align with the amount of unpaid invoices. This situation is rare, as businesses often have customers who do not pay on time or become uncollectible.
Test: Banking Company Accounts - Question 10
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What is another term used interchangeably with the provision for doubtful debts?
Detailed Solution for Test: Banking Company Accounts - Question 10
Another term used interchangeably with the provision for doubtful debts is the "allowance for doubtful accounts." Both terms refer to the estimated amount of bad debt that will arise from accounts receivable. This allowance or provision helps businesses account for potential losses and ensures accurate financial reporting.
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