Rahul’s trial balance provides the following information: Debtors Rs 80,000, Bad debts Rs 2,000, Provision for doubtful debts Rs 4,000. It is desired to maintain a provision for ba... Rahul’s trial balance provides the following information: Debtors Rs 80,000, Bad debts Rs 2,000, Provision for doubtful debts Rs 4,000. It is desired to maintain a provision for bad debts of Rs 1,000. State the amount to be debited/credited in profit and loss account.
Understand the Problem
The question pertains to accounting, specifically dealing with bad debts and provision for doubtful debts. Given the initial balances of debtors, bad debts, and provision for doubtful debts, along with the desired final provision, the task is to determine the amount to be debited or credited to the profit and loss (P&L) account to adjust the provision accordingly. This involves understanding how bad debt expenses and changes in provision for doubtful debts impact the P&L account.
Answer
Credit Rs 3,000 to the profit and loss account.
The amount to be credited to the profit and loss account is Rs 3,000.
Answer for screen readers
The amount to be credited to the profit and loss account is Rs 3,000.
More Information
The calculation is as follows: Existing provision (Rs 4,000) less desired provision (Rs 1,000) equals Rs 3,000. Since the existing provision is higher than desired, the difference is credited to the profit and loss account.
Tips
A common mistake is to debit the profit and loss account when the existing provision is higher than the desired provision. Always remember to credit the difference in this scenario.
Sources
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