Question

Provision for discount on debtors is created for_____.

• A. Good debtor
• B. Bad debtor
• C. Bad debts
• D. Late payment

Answer 1

Answer: (A)

Good debtor

A business enterprise allows discount to its debtors encourage prompt payments. Discount likely to be allowed to customers in an accounting year can be estimated and provided for by creating a provision for discount on debtors. Provision for discount is made on good debtors which are arrived at by deducting further bad debts and the provision for doubtful debts. The following journal entry is recorded to create provision for discount on debtors:

Profit and Loss A/c Dr.

To Provision for Discount on Debtors A/c

The provision for discount on debtors will be created only on good debtors.