Tag: accountancy

Questions Related to accountancy

Consider the following data and identify the amount which will be deducted from sundry debtors in balance sheet.

Particulars Rs.
Bad debts(from trial balance) $1,600$
Provision for doubtful debts(old) $2,000$
Current years' provision(new) $800$
accountancy provisions and reserves reserves provisions provision and reserves

  1. Rs. $400$

  2. Rs. $800$

  3. Rs. $2,000$

  4. Rs. $2,400$

Show answer
Correct Option: B

If an accumulated provision for depreciation account is in use then the entries for the year's depreciation would be ________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. debit Asset Account, credit Profit and Loss Account

  2. credit Profit and Loss Account, debit Provision for Depreciation Account

  3. credit Asset Account, debit Provision for Depreciation Account

  4. credit Provision for Depreciation Account, debit Profit and Loss Account

Show answer
Correct Option: D

Which of the following statement is/are NOT correct?

accountancy provisions and reserves reserves provisions provision and reserves

  1. Provision for bad debts appears as a liability on the balance sheet

  2. The provision for bad debts is owed to the proprietor

  3. Bad debts could be less than the provision for bad debts

  4. Bad debts could exceed the provision for bad debts

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Correct Option: B

Pick the odd one ________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Reserve for discount on creditors is credited to profit & loss account.

  2. Provision for discount on creditors is always made.

  3. Discount on creditors should be deducted from Sunday creditors in balance sheet.

  4. Both A & C.

Show answer
Correct Option: B
Explanation:

Provision for Discount on Creditors. When the business makes prompt payments of its debts, it is bound to receive Discounts from its creditors.  A Provision for such discount is made in the current year itself so that that the discounts thus earned may be credited to the Profit and Loss Account of the current year.

Making Provision for depreciation is an example of __________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Increase in Asset & Owner's Liability

  2. Decrease in Asset & Owner's Liability

  3. Increase in Liability & Owner's Liability

  4. Decrease in Liability & Increase in Owner's Liability

  5. Increase in Liability & Decrease in Owner's Liability

Show answer
Correct Option: B
Explanation:

Provision for depreciation means wherein the depreciation of an asset is accumulated in a different account called provision for depreciation. 

Making a provision would decrease the asset and owner's equity.

The Provision for discount on debtors is calculated _______________________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Before deducting additional Bad Debts

  2. Before deducting additional discount

  3. Before deducting provision for doubts from debtors

  4. After deducting provision for doubtful debts from debtors

Show answer
Correct Option: D
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. Later, when you identify a specific customer invoice that is not going to be paid, eliminate it against the provision for doubtful debts.

In other words, the amount of the provision for discount is calculated after deducting bad debts and provision for doubtful debts from sundry debtors. Suppose, sundry debtors total Rs. 20, 000; provision for doubtful debts is required at 5% and provision for discounts at 2 ½ %.

Total debtors account will be affected by ___________.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Cash sales

  2. Credit sales

  3. B/R closing balance

  4. All of the above

Show answer
Correct Option: B
Explanation:

Credit sales are debited to the individual debtors account and credited to sales account. 

Debtors account will be effected by credit sales. 

The provisions relating to inter-corporate loans are inter-alia laid down in :

accountancy provisions and reserves reserves provisions provision and reserves

  1. Section 370 of the Companies Act 1956

  2. Section 372 of the Companies Act 1956

  3. Section 372A of the Companies Act 1956

  4. Section 371 of the Companies Act 1956

Show answer
Correct Option: A
Explanation:

As per Section 370 of the companies Act 1956 had the provisions related to inter-corporate loans. According to this section No company (the lending company") shall make any loan to, or give any guarantee, or provide any security, in connection with a loan made by any other person to, or to any other person by, anybody corporate , unless the making of such loan, the giving of such guarantee or the provision of such security has been previously authorised by a special resolution of the lending company.


Further, Section 370 of companies Act 1956 has been repealed by Section 186 of New Companies Act 2013

Give journal entry for:
For creating provision for doubtful debts.

accountancy provisions and reserves reserves provisions provision and reserves

  1. Provision for doubtful debts A/c    Dr.

    To Profit and Loss A/c

  2. Profit and Loss A/c      Dr.

    To Provision for doubtful debts A/c

  3. Bad debts A/c    Dr.

    To Sundry debtors A/c

  4. Profit & Loss A/c    Dr.

    To Bad debts A/c

Show answer
Correct Option: B
Explanation:

Provision for doubtful debt is created for the anticipated loss due to non recovery of the debtors amount. It is a charge to the profit & loss account. 

Following journal entry will be passed:

Profit & Loss A/c                                      Dr.
  To Provision for doubtful debts A/c

Which of the following is created by debiting the Profit and Loss Account ?

accountancy provisions and reserves reserves provisions provision and reserves

  1. Provision.

  2. Sinking fund for redemption of debentures.

  3. Dividend equalization fund.

  4. All of these.

Show answer
Correct Option: A
Explanation:

Provisions are created for anticipated or estimated future losses or against the expenses which are due but not paid. 

Provisions are always created from the profit & loss account.