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Question
New R.D.D. is to be deducted from ________.
New R.D.D. is to be deducted from ________.
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Solution
The correct option is B Debtors
It is quite possible that whole of he amount of debtors may not be realised in future. However, it is not possible to accurately know the amount of such bad debts. Hence, a reasonable estimate of such loss is made and provided for the same. Such provision is called provision for bad debts and is created by debiting profit and loss account. The following journal entry is recorded as:Profit and Loss A/c Dr. To Provision for Doubtful Debts A/cNew Reserve for Doubtful Debts is deducted from the debtors on the asset side of the balance sheet.
It is quite possible that whole of he amount of debtors may not be realised in future. However, it is not possible to accurately know the amount of such bad debts. Hence, a reasonable estimate of such loss is made and provided for the same. Such provision is called provision for bad debts and is created by debiting profit and loss account. The following journal entry is recorded as:
Profit and Loss A/c Dr.
To Provision for Doubtful Debts A/c
New Reserve for Doubtful Debts is deducted from the debtors on the asset side of the balance sheet.
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