Question

Reserve for doubtful debts appearing in the trial balance should be _______________.

• A. Credited to P & L A/c
• B. Shown in liability side in balance sheet
• C. Reduced from related asset in the balance sheet
• D. Both A and C

Answer 1

Answer: (D)

Both A and C

Reserve for doubtful debt is created on conservatism concept. Conservatism concept assumes that all the anticipated losses should be recorded in books of account to know the true profitability.

Adjustment for Reserve for doubtful debts is to be done while preparing the profit & loss account.

If the reserve is appearing in trial balance, that means an adjustment entry has already been passed in books of account. This has to be shown in credit side of profit & loss account and will appear in liability side of balance sheet.