Question

The Provision for discount on debtors is calculated _______________________.

• A. Before deducting additional Bad Debts
• B. Before deducting additional discount
• C. Before deducting provision for doubts from debtors
• D. After deducting provision for doubtful debts from debtors

Answer 1

The correct option is D After deducting provision for doubtful debts from debtors

The provision for doubtful debts is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. Later, when you identify a specific customer invoice that is not going to be paid, eliminate it against the provision for doubtful debts.

In other words, the amount of the provision for discount is calculated after deducting bad debts and provision for doubtful debts from sundry debtors. Suppose, sundry debtors total Rs. 20, 000; provision for doubtful debts is required at 5% and provision for discounts at 2 ½ %.