Accounting - Study Mode
[#1046] What does 'aged debtors analysis' signify?
Correct Answer
(A) shows how long debts have been outstanding
Explanation
Solution: Aged debtors analysis shows how long debts have been outstanding. An aged debtors report is a totalled list of all the invoices your customers haven't yet paid you for, less any credit notes you've issued to your customers and not yet refunded them for.
[#1047] Which of the following is the most common cause of bad debt?
Correct Answer
(D) Debtor declared to be a bankrupt
Explanation
Solution: Debtor declared to be a bankrupt is the most common cause of bad debt. A bad debt is a monetary amount owed to a creditor that is unlikely to be paid and, or which the creditor is not willing to take action to collect for various reasons, often due to the debtor not having the money to pay, for example due to a company going into liquidation or insolvency.
[#1048] Which accounting concept dictates the inclusion of 'provision for doubtful debts' in the financial statements?
Correct Answer
(D) Prudence concept
Explanation
Solution: Prudence concept dictates the inclusion of 'provision for doubtful debts' in the financial statements.
[#1049] Which of the following is a commonly used base to create the provision for doubtful debts?
Correct Answer
(B) Total credit sales
Explanation
Solution: Total credit sales is a commonly used base to create the provision for doubtful debts. 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. It is identical to the allowance for doubtful accounts.
[#1050] Provision for doubtful debts account is a/an
Correct Answer
(B) Contra asset account
Explanation
Solution: Provision for doubtful debts account is an Contra asset account. It is used along with the account Accounts Receivable in order for the balance sheet to report the net realizable value of the company's accounts receivable.