Bad debts reserve account always shows ________ balance.

credit

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debit

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zero

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positive

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Solution

The correct option is A credit
The bad debt reserve is a provision for the estimated amount of bad debt that is likely to arise from existing account receivable. A bad debt reserve is a contra account, which is designed to offset the receivables account with which it is prepared. The receivables account has a natural debit balance, while the bad debt reserve has a natural credit balance.

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Under ___ method , the capital account always shows a credit balance.

The following information are extract from the trial balance of M/s Nisha traders on 31 December, 2005.

$\begin{matrix} Sundry Debtors & 80, 500 Bad debts & 1, 000 Provision for bad debts & 5, 000 Additional Information Bad Debts & Rs. 500 \end{matrix}$

Provision is to be maintained at 2 % of Debtors.

Prepare bad debts account, Provision for bad debts account and Profit and Loss account.

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