Day: December 6, 2019

Relative to not having a provision for bad or doubtful debts, the existence of such a provision . . .

Select ONE answer:

1. increases the total of current liabilities.
2. reduces the cost of sales.
3. reduces the total of current assets.
4. None of the above.

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

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

The answer is 3

1. Not correct – The existence of a provision for bad or doubtful debts does not affect current liabilities.
2. Not correct – The existence of a provision for bad or doubtful debts does not affect the cost of sales.
3. Correct – The amount of any provision for bad or doubtful debts is deducted from the debtors total which is shown as a current asset in the balance sheet. Because it is deducted, it reduces the total of current assets (relative to what the total would be if the provision was not deducted).
4. Not correct

 

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