Question

A decrease in the provision for doubtful debts would result in ______________.

• A. an increase in liabilities
• B. a decrease in working capital
• C. a decrease in net profit
• D. an increase in net profit

Answer 1

The correct option is D an increase in net profit

Provision for Doubtful Debts means the expense reported on the income statement or profit and loss A/c. If Provision for Doubtful Debts is the current period expense associated with the losses from normal credit sales, it will appear as an operating expense usually as part of Selling, General and Administrative Expenses (SG&A). If a provision for doubtful debts would decrease then debit balance of profit and loss A/c would decrease and ultimately net profit would increase.