Question

Select the most appropriate alternative from those given below:
Reserve for discount on debtor has a _______ balance.

• A. credit
• B. debit
• C. nil
• D. positive

Answer 1

The correct option is A credit

All the reserves and provisions are made out of profit. Profit being a nominal account has a credit balance. Therefore, all the reserves and provisions also have a credit balance.

Reserve for discount on debtors is made in order to make a provision to allow discount to the debtors on payment. Discount on debtors is an expense and thus the business provides for it in advance.

The entry is:

Profit and Loss A/c............Dr.

To Reserve for discount on debtors A/c.

Thus, the correct option is A.