Which of the following is the effect on net income if a business decreases provision for doubtful debts?
A) It will increase net income RIGHT ANSWER!!!
B) It will decrease net income WRONG ANSWER
C) No effectWRONG ANSWER
D) It will increase gross profit and net income WRONG ANSWER
A firm has not recorded the bad debts by mistake. Which of the following is the effect of bad debts omission?
A) Net profit would decreaseWRONG ANSWER
B) Net profit would increase RIGHT ANSWER!!!
C) Gross profit would overstate WRONG ANSWER
D) Gross profit would understate WRONG ANSWER
When it is certain that a debt won’t be recovered. Which of the following is correct?
A) Provision for bad debt is created WRONG ANSWER
B) Account receivable is creditedRIGHT ANSWER!!!
C) Bad debts is creditedWRONG ANSWER
D) Sales is debitedWRONG ANSWER
A recovery of bad debt
A) increases net income RIGHT ANSWER!!!
B) decreases net income WRONG ANSWER
C) increases gross profitWRONG ANSWER
D) increases gross profit and net income WRONG ANSWER
The opening balance of “provision for doubtful debts account” is $1000 whereas the closing balance of debtors account is 100,000. What amount of provision for doubtful debts should be charged to income statement using a 5% provision for doubtful debts for the current accounting period?
A) $5000WRONG ANSWER
B) $4000 RIGHT ANSWER!!!
C) $2000 WRONG ANSWER
D) $1000 WRONG ANSWER
The opening and closing balances of provision for doubtful debts account are $1000 and $2000 whereas bad debts are totaled $200
A) $1000 is to be deducted from total debtors balance in the balance sheet WRONG ANSWER
B) $2000 is to be subtracted from total debtors balance in the balance sheetRIGHT ANSWER!!!
C) $1000 is to be added to total debtors balance in the balance sheet WRONG ANSWER
D) $2000 is to be added to total debtors balance in the balance sheet WRONG ANSWER
Which of the following double entries is used to transfer “bad debts recovered” to income statement?
A) Bad debts recovered Debit and income statement Credit RIGHT ANSWER!!!
B) Income statement Debit and bad debts recovered Credit WRONG ANSWER
C) Cash Debit and bad debts recovered CreditWRONG ANSWER
D) Bad debts recovered debit and cash Credit WRONG ANSWER
What does aged debtors analysis signify?
A) shows how long debts have been outstandingRIGHT ANSWER!!!
B) How old the customers areWRONG ANSWER
C) How long does a business take to repay the bank loans WRONG ANSWER
D) Minimum number of old debtors WRONG ANSWER
Which of the following is the most common cause of bad debt?
A) Debtor refusal to repaymentWRONG ANSWER
B) Debtor left the country WRONG ANSWER
C) Debtor committed a crimeWRONG ANSWER
D) Debtor declared to be a bankrupt RIGHT ANSWER!!!
According to a general rule of accounting, the older a debts is outstanding, the more likelihood that the debt will turn out to be a
A) provision for bad debt WRONG ANSWER
B) profitable debt for the business WRONG ANSWER
C) bad debt RIGHT ANSWER!!!
D) asset for the businessWRONG ANSWER
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