Calculate the provision to be taken to the balance sheet?

Use the information below to answer questions

Sundry debtor………………N20,000
Provision for bad debts……..N500

Provision for bad debt at 4% of sundry debtors.

A. N780
B. N800
C. 1200
D. N200

Correct Answer:

Option B – N800

Explanation

The business owner made a provision of 500 as bad debt. Total debt owed was 20,000. At the end of the period, bad debts was 4%. Hence we have;

4% x 20000
0.04 x 20000 = 800