A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 34 - 34 of 93
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Question 34
Question
MCQ▾Provision for discount on debtors shall be made on:
Choices
| Choice (4) | |
|---|---|
a. | Book debts before incurring bad debt and before providing for bad debt |
b. | Book debts before incurring bad debts after providing for bad debt |
c. | Book debts after incurring bad debts but before providing for bad debt |
d. | Book debts after incurring bad debt and after providing for bad debt |
Answer
d.Explanation
Provision for Discount on Debtors: It is a normal practice in the business to allow cash discount to those debtors from whom the payment is received promptly or within a fixed period. Discount thus allowed will be an expense of the business and is therefore debited to the Profit & Loss Account. As there will be debtors who will make early payment in the next accounting year and will be allowed such discount. A provision is created for such discount for the current year. The process of creating a provision for discount is the same as for the provision for doubtful debts. The following entry will be passed for this purpose:
Profit & Loss A/C
To, Provision for Discount on Debtors A/C
(Provision for discount created on good Debtors)
Treatment in Final Accounts: Such provision is shown on the debit side of the Profit & Loss Account and is also deducted from Sundry Debtors on the Assets side of the Balance Sheet.