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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