Determine the provision for bad debts to profit and loss account?

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. N500
B. N820
C. N1300
D. N300

Correct Answer:

Option D –  N1300

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

we subtract the total bad debt from the amount that was initially provided for bad debt and charge it to the profit and loss account as a expense

Provision for bad debts = 500
800 – 500 = 300
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