[amp_mcq option1=”Provision for bad debt is created” option2=”Account receivable is credited” option3=”Bad debts is credited” option4=”Sales is debited” correct=”option1″]<\/p>\n
The correct answer is A. Provision for bad debt is created.<\/p>\n
When it is certain that a debt won’t be recovered, the company should create a provision for bad debt. This is an estimate of the amount of money that the company expects to lose on uncollectible accounts. The provision for bad debt is recorded as an expense on the income statement and as a liability on the balance sheet.<\/p>\n
Option B is incorrect because account receivable is a current asset. When a debt is written off, the account receivable is reduced. However, the provision for bad debt is a liability, not an asset.<\/p>\n
Option C is incorrect because bad debts is a contra-asset account. When a debt is written off, the bad debts account is increased. However, the provision for bad debt is a liability, not a contra-asset account.<\/p>\n
Option D is incorrect because sales is a revenue account. When a debt is written off, sales is not affected.<\/p>\n","protected":false},"excerpt":{"rendered":"
[amp_mcq option1=”Provision for bad debt is created” option2=”Account receivable is credited” option3=”Bad debts is credited” option4=”Sales is debited” correct=”option1″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[85],"tags":[],"class_list":["post-8881","post","type-post","status-publish","format-standard","hentry","category-accounting","no-featured-image-padding"],"yoast_head":"\n