Question

D's trial balance contains the following information:
Bad debts Rs. 500
Provision for bad debts Rs. 4,000
It is desired to maintain a provision of Rs. 3,000 at the end of the year Accounting treatment of this adjustment is_________________________.

• A. Rs. 1,500 to be debited to profit and loss a/c
• B. Rs. 500 to be debited to profit and loss a/c
• C. Rs. 500 to be credited to profit and loss a/c
• D. Rs. 3,500 to be debited to profit and loss a/c

Answer 1

Answer: (C)

Rs. 500 to be credited to profit and loss a/c

P & L A/c to be debited/credited = New provision + bad debts - old provision

= Rs-3,000 + Rs-500 - Rs-4,000

= Rs-500 to be credited.

There is excess old provision hence to make the current provision as Rs-3000, Rs-500 is to be credited.