Accounting Multiple Choice Question – 5 December 2019

The home of multiple choice questions for all your KS3, KS4 and KS5 Business Studies, Economics and Accounting requirements.

Accounting

The rationale for making a provision in respect of doubtful debts is that the provision . . .

Select ONE answer:

  1. is an estimate of future bad debts.
  2. records the expense of bad debts as they are incurred.
  3. matches the estimated cost of future bad debts against the revenue earned in giving rise to the potential bad debts
  4. records bad debts without taking them out of the showing the full amount owed by debtors as a current ‘books’ of an entity, thus asset.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

  1. Not correct
  2. Not correct
  3. Correct -A provision for bad debts is calculated by reference to the current level of debtors. These debtors have arisen (at least principally) because of sales in the current accounting period. The total of these sales is included as revenue in the profit and loss account. However, as all of these debtors may not pay, this amount of revenue is overstated. It is therefore appropriate to offset this in part by a charge to the profit and loss account.
  4. Not correct

 

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Author: stuart001uk2014

Referral marketing, business, economics and accounting s​pecialist & corporate mentor

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