Question 1

To make a provision for bad debts the correct procedure is to:

Accepted Answer

A)  Dr. Provision for bad debts account Cr. Bad debts account 
B)  Dr. Trade receivables account Cr. Provision for bad debts account 
C)  Dr Provision for bad debts account Cr. Income statement account 
D)  Dr. Income statement account Cr. Provision for bad debts account 
A)  Dr. Provision for bad debts account Cr. Bad debts account 
B)  Dr. Trade receivables account Cr. Provision for bad debts account 
C)  Dr Provision for bad debts account Cr. Income statement account 
D)  Dr. Income statement account Cr. Provision for bad debts account D

Question 2

An increase in the provision for doubtful debts results in

Accepted Answer

A)  A decrease in current liabilities. 
B)  An increase in net profit. 
C)  An increase in working capital. 
D)  A decrease in working capital. 
A)  A decrease in current liabilities. 
B)  An increase in net profit. 
C)  An increase in working capital. 
D)  A decrease in working capital. D

Question 3

A company has been informed that a credit customer has just been declared bankrupt. The balance on his account was £1,000. Which of the following is the correct double entry?

Accepted Answer

A)  Dr. Bad debts a/c £1,000. 
B)  Cr. Trade receivables a/c £1,000 
C)  Dr. Trade receivables a/c £1,000. 
D)  Cr. Bad debts a/c £1,000 
E)  Dr. Provision for doubtful debts a/c £1,000
F) Cr. Trade receivables a/c £1,000 .
G) Dr. Trade receivables a/c £1,000  .
H) Cr. Provision for doubtful debts a/c £1,000. 
A)  Dr. Bad debts a/c £1,000. 
B)  Cr. Trade receivables a/c £1,000 
C)  Dr. Trade receivables a/c £1,000. 
D)  Cr. Bad debts a/c £1,000 
E)  Dr. Provision for doubtful debts a/c £1,000
F) Cr. Trade receivables a/c £1,000 .
G) Dr. Trade receivables a/c £1,000  .
H) Cr. Provision for doubtful debts a/c £1,000. A

Question 4

15.What is the balance in the sales ledger at the end of the year?

Accepted Answer

A)  £18,000 
B)  £17,750 
C)  £18,750 
D)  £20,000 
A)  £18,000 
B)  £17,750 
C)  £18,750 
D)  £20,000

Question 5

Increases in the provision for doubtful debts will affect the income statement as follows:

Accepted Answer

A)  The income statement will be credited with the movement and the amount will appear under expenses 
B)  The income statement will be debited with the movement and the amount will appear under expenses 
C)  The income statement will be credited with the new balance on the provision for doubtful debts account under expenses 
D)  The income statement will be debited with the new balance on the provision for doubtful debts account under expenses 
A)  The income statement will be credited with the movement and the amount will appear under expenses 
B)  The income statement will be debited with the movement and the amount will appear under expenses 
C)  The income statement will be credited with the new balance on the provision for doubtful debts account under expenses 
D)  The income statement will be debited with the new balance on the provision for doubtful debts account under expenses

Question 6

The balance on an entity's sales ledger control account is £36,000. It is company policy to maintain a provision for bad debts of 10% of trade receivable balances in addition to any specific amounts that are noted. You are told that two credit customers (Alfie who has a balance owing of £1,500 and Wilfred who has a balance owing of £2,500) are experiencing financial difficulties due to the recession.
Given this information what will the balance on the provision for doubtful debts be at the end of the year?

Accepted Answer

A)  £3,600 
B)  £4,000 
C)  £7,200 
D)  £7,600 
A)  £3,600 
B)  £4,000 
C)  £7,200 
D)  £7,600

Question 7

In Anna Company's statement of financial position at 31 March 20X1 net trade payables should be:

Accepted Answer

A)  £147,000 
B)  £349,000 
C)  £350,200 
D)  £107,000 
A)  £147,000 
B)  £349,000 
C)  £350,200 
D)  £107,000

Question 8

The entity has trade receivables of £5,000 and a provision for bad debts of £450. The entity wishes to increase its provision to 10% of the trade receivables. The correct procedure would be to:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 9

In Anna Company's statement of financial position at 31 March 20X1 net trade receivables should be:

Accepted Answer

A)  £121,800 
B)  £125,000 
C)  £136,800 
D)  £153,000 
A)  £121,800 
B)  £125,000 
C)  £136,800 
D)  £153,000

Question 10

On 31 December the following balances existed in an entity's books. Trade receivables £3,000, bad debts written off £50, provision for bad debts £200. The entity requires a provision for bad debts to be made of 10% of the trade receivables. It should:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 11

A company has been informed that a credit customer has just been declared bankrupt, though it is probable that the customer's trade payables will get 50p for every pound outstanding, when the assets of his business are sold. The balance on his account was £1,000. Which of the following is the correct double entry to deal with this information?

Accepted Answer

A)  Dr. Bad debts a/c £1000 
B)  Cr. Trade receivables a/c £1,000. 
C)  Dr. Bad debts a/c £500 
D)  Cr. Trade receivables a/c £500 
E)  Dr. Provision for doubtful debts a/c £1,000 
F) Cr. Trade receivables a/c £1,000
G) Dr. Provision for doubtful debts a/c £500
H) Cr. Trade receivables a/c £500. 
A)  Dr. Bad debts a/c £1000 
B)  Cr. Trade receivables a/c £1,000. 
C)  Dr. Bad debts a/c £500 
D)  Cr. Trade receivables a/c £500 
E)  Dr. Provision for doubtful debts a/c £1,000 
F) Cr. Trade receivables a/c £1,000
G) Dr. Provision for doubtful debts a/c £500
H) Cr. Trade receivables a/c £500.

Question 12

Which of the following is the correct entry to the income statement account in respect of bad and doubtful debts for the period?

Accepted Answer

A)  Increase in provision for doubtful debts £4,750; bad debts £0 
B)  Increase in provision for doubtful debts £2,250; bad debts £2,500 
C)  Increase in provision for doubtful debts £1,250; bad debts £2,500 
D)  Increase in provision for doubtful debts £1,000; bad debts £2,500 
A)  Increase in provision for doubtful debts £4,750; bad debts £0 
B)  Increase in provision for doubtful debts £2,250; bad debts £2,500 
C)  Increase in provision for doubtful debts £1,250; bad debts £2,500 
D)  Increase in provision for doubtful debts £1,000; bad debts £2,500

Question 13

What will the balance on the provision for doubtful debts and the bad debts accounts be at the end of the year?

Accepted Answer

A)  Provision for doubtful debts £4,750; 
B)  Bad debts £0 
C)  Provision for doubtful debts £4,750 
D)  Bad debts £0 . 
E)  Provision for doubtful debts £2,250
F) Bad debts £2,500.
G) Provision for doubtful debts £2,000;
H) Bad debts £2,500 
A)  Provision for doubtful debts £4,750; 
B)  Bad debts £0 
C)  Provision for doubtful debts £4,750 
D)  Bad debts £0 . 
E)  Provision for doubtful debts £2,250
F) Bad debts £2,500.
G) Provision for doubtful debts £2,000;
H) Bad debts £2,500

Question 14

Which of the following statements about trade receivables, bad debts and provisions for bad debts is incorrect?

Accepted Answer

A)  Trade receivables usually appear as a current asset in the statement of financial position 
B)  Provisions for bad debts usually have a debit balance in the ledger 
C)  The bad debts account usually has a debit balance in the ledger 
D)  An increase in the provision for bad debts account will reduce the profit of the entity. 
A)  Trade receivables usually appear as a current asset in the statement of financial position 
B)  Provisions for bad debts usually have a debit balance in the ledger 
C)  The bad debts account usually has a debit balance in the ledger 
D)  An increase in the provision for bad debts account will reduce the profit of the entity.

Question 15

Entities make provision for bad debts in order to:

Accepted Answer

A)  Avoid having any bad debts 
B)  Get their credit customers to pay more quickly 
C)  Keep the trade receivables figure approximately the same value each year 
D)  Obtain a 'true and fair' trade receivables figure for the statement of financial position. 
A)  Avoid having any bad debts 
B)  Get their credit customers to pay more quickly 
C)  Keep the trade receivables figure approximately the same value each year 
D)  Obtain a 'true and fair' trade receivables figure for the statement of financial position.

Question 16

When a bad debt recovered is not adjusted for:

Accepted Answer

A)  Profits are overstated and current assets are overstated 
B)  Profits are overstated and current assets are understated 
C)  Profits are understated and current assets are overstated 
D)  Profits are understated and current assets are understated. 
A)  Profits are overstated and current assets are overstated 
B)  Profits are overstated and current assets are understated 
C)  Profits are understated and current assets are overstated 
D)  Profits are understated and current assets are understated.

Exam 16: Bad Debts and Provisions for Bad Debts

To make a provision for bad debts the correct procedure is to:

An increase in the provision for doubtful debts results in

A company has been informed that a credit customer has just been declared bankrupt. The balance on his account was £1,000. Which of the following is the correct double entry?

15.What is the balance in the sales ledger at the end of the year?

Increases in the provision for doubtful debts will affect the income statement as follows:

In Anna Company's statement of financial position at 31 March 20X1 net trade payables should be:

The entity has trade receivables of £5,000 and a provision for bad debts of £450. The entity wishes to increase its provision to 10% of the trade receivables. The correct procedure would be to:

In Anna Company's statement of financial position at 31 March 20X1 net trade receivables should be:

On 31 December the following balances existed in an entity's books. Trade receivables £3,000, bad debts written off £50, provision for bad debts £200. The entity requires a provision for bad debts to be made of 10% of the trade receivables. It should:

Which of the following is the correct entry to the income statement account in respect of bad and doubtful debts for the period?

What will the balance on the provision for doubtful debts and the bad debts accounts be at the end of the year?

Which of the following statements about trade receivables, bad debts and provisions for bad debts is incorrect?

Entities make provision for bad debts in order to:

When a bad debt recovered is not adjusted for:

Entities and Financial Reporting Standards

International Accounting: Institutional Framework and Standards

The Nature and Objectives of Financial Accounting

Accounting Principles, Concepts and Policies

The Conceptual Framework of Accounting

Auditing, Corporate Governance and Ethics

The Accounting Equation and Its Components

Basic Documentation and Books of Accounts

The General Ledger

The Balancing of Accounts and the Trial Balance

Day Books and the Journal

The Cash Book

The Petty Cash Book

The Final Financial Statements of Sole Traders

Depreciation and Non-Current Assets

Accruals and Prepayments

The Preparation of Final Financial Statements From the Trial Balance

The Bank Reconciliation Statement

Control Accounts

Errors and Suspense Accounts

Single Entry and Incomplete Records

Inventory Valuation

Financial Statements for Manufacturing Entities

The Final Financial Statements of Clubs

The Final Financial Statements of Partnerships

Changes in Partnerships

Partnership Dissolution and Conversion to Company Status

The Nature of Limited Companies and Their Capital

The Final Financial Statements of Limited Companies

Statement of Cash Flows

The Appraisal of Company Financial Statements Using Ratio Analysis

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