Accounting Multiple Choice Question – 8 December 2019

When preparing financial statements, the bad debts account is ‘closed’ by a transfer to…

Select ONE answer:

1.  the balance sheet.
2. the profit and loss account.
3. the trading account.
4. the provision for bad debts account.

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 2

1. Not correct
2. Correct – The purpose of the bad debts account is to accumulate the total of the bad debts written off during an accounting period. As writing off bad debts is an expense, this total must then be charged in the profit and loss account. In general, the difference between the two sides of an expense or revenue account is transferred to the profit and loss account – a balance is not carried down (and therefore not brought down) on these types of accounts. On the other hand, the difference between the two sides of an asset or liability account (balance sheet accounts) is the balance on that account – to be listed in the trial balance and subsequently shown in the balance sheet.
3. Not correct
4. Not correct

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