In preparing a profit and loss account, a decrease in provision for doubtful debts accounts is treated as?

A. Current liability
B. Expenses
C. Income
D. Current asset

Correct Answer: Option C

C. Income

Explanation

The effects of provision for doubtful debts in financial statements may be summed up as follows:

(1) Income Statement: Only change (increase or decrease) in provision for doubtful is shown in the income statement. When there is an increase, then its considered an expense which will be (deducted from profit) and when it decreases, then it is an income and will be (added in profits).