Which of the following would result from an increase in the provision for doubtful debts?

A. A Decrease in gross profit
B. A decrease in net profit
C. An increase in gross profit
D. An increase in net profit

Correct Answer: Option B

B. A decrease in net profit

Explanation

The provision for doubtful debts is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. Provision for bad debts can only appear in the income statement if there is an increase in provision. Thus, the net impact of the increase in provision for doubtful debts (expenses) is the decrease in the net profit