Question

Trial balance provides you the following information:
Debtors 80,000
Bad debts 2,000
Provision for bad debts 4,000
It is desired to maintain a provision for bad debt of 1,000. State the amount to be debited/credited in profit and loss account.

• A. 5,000 (Debit)
• B. 3,000 (Debit)
• C. 1,000 (Credit)
• D. None of these

Answer 1

The correct option is C 1,000 (Credit)

The balance in provision for bad debts is appearing in trial balance Rs.4000, of which bad debts of Rs.2000 is written off. Balance lying in provision account is now Rs.2000. It is desired to maintain a provision for bad debts of Rs.1000 only, hence an excess provision of Rs.1000 to be written back to profit & loss account by crediting the profit & loss a/c.

Provision for Bad Debts A/c

Particulars Amount Particulars Amount

To Bad debts 2000 By Op Balance b/f 4000

To Profit & Loss A/c 1000

To Clo Balance c/d 1000

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4000 4000

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