CHAPTER-5 BAD & DOUBTFUL DEBT

MULTIPLE CHOICE QUESTIONS (MCQ’S)

QUESTIONS
Q.1 The following data pertains to Alpha Traders (AT)
Closing balance of Trade debtors Rs. 1160,000
Opening balance of allowance for doubtful debts Rs.90,000
Debtors will be written off Rs. 110,000

A T’s policy is to maintain the following doubtful debts @ 10%. The closing balance of allowance for
doubtful debts would be
Select the most appropriate answer:
(a) Rs.96,000 (b) Rs.116,000
(c) Rs.105,000 (d) Rs.97,000
Q.2 Which of the following statements are correct?
(i) The good debts do not require any special accounting treatment unlike bad and doubtful debts.
(ii) The doubtful debts must stay in the accounting records so that the business continues to chase
payment,
(a) Both statements are correct (b) Only statement (i) is correct
(c) Only statement (ii) is correct (d) Both statements are not correct
Q.3 What is the effect of an increase in the allowance for receivables?
(a) It will result in an increase in net current assets
(b) It will result in a decrease in net current assets
(c) It will result in an increase in sales
(d) It will result in a decrease in drawings
Q.4 Mr. X has made the entry in the bad and doubtful expense account to write off the irrecoverable balance.
What other entry does he need to make?
(a) A debit entry in the sales account
(b) A credit entry in the sales account
(c) A debit entry in the receivables account
(d) A credit entry in the receivables account
Q.5 At year end there are outstanding debts and the aged receivables analysis and the allowances required
at 31 March 2022 are:
Age of debt Rs. Allowance required
0-30 days 18,600 4% of balances
31-59 days 17,100 13% of balances
60 days and over 13,500 35% of balances
At 1 April 2021, Y allowance for receivables was Rs.3,900.
Which of the following should be reported in Y’s income statement for the year to 31 March 2022?
(a) A charge of Rs.3,972 (b) A charge of Rs.3,792
(c) A charge of Rs.3,297 (d) A charge of Rs.3,900
(e) None of the above
Q.6 At year end there are outstanding debts and the aged receivables analysis and the allowances required
at 31 March 2022 are:
Age of debt Rs. Allowance required
0-30 days 18,600 4% of balances
31-59 days 17,100 13% of balances
60 days and over 13,500 35% of balances
At 1 April 2021, Y allowance for receivables was Rs.3,900. During the year ended an amount of Rs.
3,500 were written off.

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Which of the following should be reported in Y’s income statement for the year to 31 March 2022?
(a) A charge of Rs.3,972 (b) A charge of Rs.7,792
(c) A charge of Rs.7,292 (d) A charge of Rs.3,900
(e) None of the above
Q.7 By setting up an allowance for receivables, what accounting principle is being applied?
(a) Accruals (b) Prudence
(c) Matching (d) Both B and C
Q.8 Mr. Jamshaid has created an allowance of Rs. 1,500 one of the debtors. Subsequently he recovered an
amount of Rs. 700 from that debtor. What accounting entry Mr. Jamshaid shall pass in the books of
accounts?
(a) Dr. Cash, Cr. Bad debt expense (b) Dr. Cash, Cr. Allowance for D.D
(c) Dr. Allowance for D.D, Cr. Bad debt expense (d) No entry
Q.9 Ali has following information available for his business for the year ended 31st December 2021:
Hamza has following information available for his business for the year ended 31st December 2021:
Opening allowance for doubtful debts Rs. 4,500
Bad debts written off during the year Rs. 6,000
Bad debts recovered Rs. 1,500
Closing receivables (on which speci�ic allowance of Rs.2,000 is created) Rs. 99,000
Closing allowance for doubtful debts 5.5%.
What is the net charge for bad and doubtful debts for statement of comprehensive income?
(a) Rs. 5,445 (b) Rs. 7,445
(c) Rs. 7,335 (d) Rs. 4,500
Q.10 Whether this statement is true or false:
Allowance for Doubtful debt is of Credit nature account. So, we write its closing balance as a liability in
the Statement of Financial Position?
False
Q.11 A company has been noti�ied that a debtor has been declared bankrupt. Which of the following is the
correct double entry to write off account receivable of this customer?
Debit Credit
(a) Bad debt expense Debtor
(b) Debtor Bad and doubtful expense
(c) Allowance for doubtful debt Bad and doubtful expense
(d) None of the above
Q.12 Mr. Yasin started business on 1-April 2021 and having year end of 31-March 2022. An allowance of Rs.
50,000 has been created at the year end.
(a) It decreases both Assets and Pro�it (b) It decrease assets
(c) It increases liability (d) None of the above
Q.13 The allowance for receivables in the accounts at 31 October 2011 was Rs. 9,000. During the year ended
31 October 2012, bad debts of Rs. 5,000 were written off
The receivables balance at 31 October 2012 was Rs. 120,000 and, based on past experience, the entity
wishes to set the allowance at 5% of receivables.
What is the total charge for bad debts and the allowance for receivables in the statement of
comprehensive income for the year ended 31 October 2012?
(a) Rs. 2,000 (b) Rs. 3,000
(c) Rs. 5,000 (d) Rs. 8,000
Q.14 Contra Asset account has what type of balance?
(a) Debit (b) Credit
(c) Contra (d) All of these

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Q.15 A business has closing receivables balance is Rs. 75,000. It includes one of the accounts receivable
named Ali, who is going through �inancial crisis. It is expected that he can pay 75% of his total debt of
Rs. 5,000. Business has decided to calculate an allowance for doubtful debt at 5%.
What is the amount of allowance to be deducted from receivable in statement of �inancial position?
(a) Rs. 3,500 (b) Rs. 3,750
(c) Rs. 7,250 (d) Rs. 4,750
Q.16 The nature of “Allowance for doubtful debt” account is:
(a) Contra asset account (b) Asset account
(c) Expense (d) Liability account
Q.17 At the end of accounting period, KLM Company �inds out that its total Receivables are Rs. 10,000. On
scrutiny of accounts, it turned out that a bad debt amounting to Rs. 1,000 was not recorded in the books
of accounts. Furthermore, having considered the current economic situation, management of the
company decided to increase the allowance for doubtful debts by Rs. 500.
Find out what net amount to be expensed out in the statement of comprehensive income?
(a) Rs. 10,000 (b) Rs. 1,000
(c) Rs. 11,000 (d) Rs. 1,500
Q.18 At January 1, 2017 the allowances for receivable of Sidra were Rs. 35,000. During the year ended 31
December 2017 debts totaling Rs. 15,000 were written off. It was decided that the allowance for
doubtful debts should be Rs. 30,000 as at December 31, 2017.
What amount should be charged to statement of comprehensive income of Sidra for bad and doubtful
debts expense?
(a) Rs. 30,000 (b) Rs. 45,000
(c) Rs. 15,000 (d) Rs. 10,000
Q.19 Which of the following can be most relevant to calculation of allowance for doubtful debts?
(a) Total credit sales (b) Total credit purchases
(c) Total current assets (d) Total current liabilities
Q.20 At January 1, 2017 the balance in allowance for receivable showed Rs. 16,000. At the end of the year, it
is decided to write off Rs. 9,000 and adjust allowance for receivable to Rs. 18,000.
What will be the effect of this decision on pro�it for the year?
(a) Decrease by Rs. 27,000 (b) Increase by Rs. 18,000
(c) Decrease by Rs. 11,000 (d) Decrease by Rs. 9,000
Q.21 Sania creates allowance for doubtful debts after considering the length of time the debt remains
outstanding.
She has provided following data as at 31st March 2018
Debt amount Rs. Days outstanding Allowance required
130,000 30 days Nil
75,000 31-60 2%
50,000 Over 60 days 5%
Opening balance of allowance for doubtful debts was Rs. 3,500.
What is the amount to be charged to statement of comprehensive income for the year?
(a) Rs. 4,000 (b) Rs. 3,500
(c) Rs. 500 (d) Rs. 7,500
Q.22 Which of the following Receivables have highest probability to default on trade debts?
(a) Current month Receivables (b) Over 90 day old Receivables
(c) 60 to 90 days old Receivables (d) 30 to 60 days old Receivables

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Q.23 A business has received an amount of Rs. 1,000 from a receivable that had been previously written off
as irrecoverable.
What is the correct accounting entry to record the transaction?
(a) Dr Cash 1,000 Cr Bad and doubtful debts expense a/c Rs. 1,000
(b) Dr Cash 1,000 Cr Receivables Rs. 1,000
(c) Dr Statement of comprehensive income Rs. 1,000 Cr Receivables Rs. 1,000
(d) Dr Statement of comprehensive income Cr Cash Rs. 1,000
Q.24 At year end, the receivable balance on 31 March 2019 is Rs. 93,000. This includes a debt of Rs. 1,800
which needs to be written off.
The business maintains allowance for doubtful debts at 5% of Receivable balance. And this year
allowance has increased by 20% as compared to last year.
What was the balance of Allowance for doubtful debts at 1 April 2018?
(a) Rs. 3,875 (b) Rs. 5,472
(c) Rs. 3,800 (d) Rs. 4,560
Q.25 At 30 September 2012 an entity’s allowance for receivables amounted to Rs. 38,000, which was �ive
per cent of the receivables at that date.
At 30 September 2013 receivables totaled Rs. 868,500. It was decided to write off Rs. 28,500 of debts
as irrecoverable and, based on past experience, to keep the allowance for receivables at 5% of
receivables.
What should be the charge in the statement of comprehensive income for the year ended
30 September 2013 for the total of bad debts and the allowance for receivables?
(a) Rs. 42,000 (b) Rs. 33,925
(c) Rs. 70,500 (d) Rs. 32,500
Q.26 Which of the following is the effect on net pro�it if a business decreases provision for doubtful debts?
(a) It will increase net pro�it (b) It will decrease net pro�it
(c) It will increase gross and net pro�it (d) No effect
Q.27 What is the nature of allowance for doubtful debt account?
(a) An asset (b) A liability
(c) An equity (d) Contra asset account
Q.28 Is there a difference in bad and double debts?
(a) No, they are inter-changeable
(b) Yes, bad debt refers to an account receivable that has been clearly identi�ied as not being
collectible. Whereas a doubtful debt is an account receivable that might become a bad debt at
some point in the future
(c) Yes, doubtful debt refers to an account receivable that has been clearly identi�ied as not being
collectible. Whereas a bad debt is an account receivable that might become a bad debt at some
point in the future
(d) They are synonymous
Q.29 What is the double entry for recording write-off of any of debts?
(a) Bad debt expense (debit) and allowance for doubtful debts (credit)
(b) Bad debt expense (debit) and accounts receivable (credit)
(c) Allowance for doubtful debts (debit) and accounts receivable (credit)
(d) None of the above
Q.30 On June 1, Rs. 800,000 of goods are sold with credit terms of 1/10, n/30. How much should the seller
expect to receive if the buyer pays on June 8?
(a) 720,000 (b) 768,000
(c) 792,000 (d) No change

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Q.31 On June 1, Rs. 800,000 of goods are sold with credit terms of 1/10, n/30. On June 3, the customer
returned Rs. 100,000 of the goods.
How much should the seller expect to receive if the buyer pays on June 8?
(a) 692,000 (b) 693,000
(c) 694,000 (d) 700,000
Q.32 Which account should be credited for Rs180,000 when writing off the account?
(a) Accounts receivable (b) Allowance for doubtful debts
(c) Bad debts expense (d) None of the above
Q.33 Sorting an entity's accounts receivable into classi�ications such as current, 1-30 days past due, and 31-
60 days past due etc. is known as the?
(a) Ratio analysis (b) Trend analysis
(c) Debtor’s analysis (d) Aging analysis
Q.34 The opening balance of “allowance for doubtful debts account” is Rs. 1,000 whereas the closing balance
of Receivables account is Rs. 100,000.
What amount of allowance for doubtful debts should be charged to statement of pro�it or loss using a
5% allowance for doubtful debts for the current accounting period?
(a) Rs.3,000 (b) Rs.4,000
(c) Rs.5,000 (d) Rs.6,000
Q.35 The opening balance on Jamal Enterprises’ receivables expense allowance was Rs. 1,000. Jamal wrote
off Rs. 4,000 of bad debts during the year. The closing balance on the doubtful debts allowance was Rs.
1,200.
What is the total charge to Jamal Enterprises’ Statement of Pro�it or Loss in respect of receivables
expense for the year?
(a) Rs. 200 (b) Rs. 3,800
(c) Rs. 4,000 (d) Rs. 4,200
Q.36 The turnover in an entity was Rs. 2 million and its accounts receivable were 5% of turnover. The entity
wishes to have an allowance for doubtful debts of 4% of receivables, which would make the allowance
one-third higher than the current allowance. How will the pro�it for the period affected by the change
in allowance?
(a) Pro�it will be reduced by Rs. 1,000
(b) Pro�it will be increased by Rs. 1,000
(c) Pro�it will be reduced by Rs. 1,333
(d) Pro�it will be increased by Rs. 1,333
Q.37 Which of the following statements concerning an allowance for receivables is INCORRECT?
(a) All businesses may create an allowance for doubtful debts in case credit sale customers do not
pay their debts
(b) The receivables account balance is written off when a speci�ic allowance for doubtful debts for
that customer is created
(c) Setting up an allowance for doubtful debts account ensures that receivables are not overstated
(d) The allowance is usually expected to increase as the value of sales revenue recognized
increases as a �irm expands
Q.38 An irrecoverable debt written off two years ago is unexpectedly recovered and entered in the cash
book.
What adjustment, if any, will be necessary?
(a) Credit Receivables (b) Credit Bad debts expense
(c) Credit Suspense account (d) No adjustment will be necessary
Q.39 An increase in the allowance for doubtful debts results in:
(a) A decrease in current liabilities (b) An increase in net pro�it
(c) An increase in current assets (d) A decrease in current assets

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Q.40 At 30 September 2014, PSL Traders had an allowance for doubtful debts of Rs. 37,000. During the year
ended 30 September 2015 the PSL Traders wrote off debts totaling Rs. 18,000 and at the end of the
year it is decided that the allowance for doubtful debts should be Rs. 20,000.
What should be included in the Statement of Pro�it or Loss for bad and doubtful debts?
(a) Rs. 35,000 debit (b) Rs. 1,000 debits
(c) Rs. 38,000 debit (d) Rs. 1,000 credits
Q.41 At 31 March Salma was owed Rs. 47,744 by her customers. At the same date her doubtful debts
allowance was Rs. 3,500. How should these balances be reported on Salma's statement of �inancial
position at 31 March?
(a) Rs. 44,244 as a current asset
(b) Rs. 3,500 as a current asset and Rs. 47,744 as a current liability
(c) Rs. 47,744 as a current asset and Rs. 3,500 as a current liability
(d) Rs. 51,244 as a current asset
Q.42 What is the purpose of maintaining an allowance for doubtful debts?
(a) An estimate of future irrecoverable debts
(b) Records the expense of irrecoverable debts
(c) Matches the estimated cost of future irrecoverable debts against the revenue earned in giving
rise to the potential irrecoverable debts
(d) Records irrecoverable debts without taking them out of the books of an entity, thus showing
the gross and expected amount owned by trade receivables as a current asset
Q.43 The existence of an allowance for bad or doubtful debts
(a) Increases the total of current liabilities (b) Reduces the cost of sales
(c) Reduces the total of current assets (d) None of above
Q.44 A transfer to close the bad and doubtful debts account is to:
(a) The statement of �inancial position
(b) The Statement of Pro�it or Loss
(c) The trading accounts
(d) The allowance for doubtful debts account
Q.45 Saima creates allowance for doubtful debts according to the length of time the debt has been
outstanding. At 31 May 2021 the analysis of accounts receivable balances and the associated allowance
was:
Time debt has been outstanding Allowance required Balance at 31 May 2021
Less than 31 days Nil 32,700
31 – 60 days 4% of balances 16,900
Over 60 days 50% of balances 8,750
If the balance at 1st June 2020 was Rs. 5,600, what adjustment should be made to the doubtful debts
allowance?
(a) An increase of Rs. 5,051 (b) A decrease of Rs. 5,051
(c) An increase of Rs. 549 (d) A decrease of Rs. 549
Q.46 Multan Sultans’ (MS) receivables ledger account shows a balance at the end of the year of Rs. 58,200
before making the following adjustments:
(i) MS wishes to write off debts amounting to Rs. 8,900 as he believes they are irrecoverable.
(ii) MS also wishes to make speci�ic allowance for Lahore Qalandars’ debt of Rs. 1,350 and
Islamabad United’s debt of Rs. 750.
(iii) MS wishes to maintain a general allowance of 3% of the year and receivables balance. MS’s
allowance for receivables at the last year end was Rs. 5,650. What is the charge to the
Statement of Pro�it or Loss in respect of the above?
(a) Rs. 6,766 (b) Rs. 11,034
(c) Rs. 6,829 (d) Rs. 10,971

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Q.47 In the statement of �inancial position at 31 December 2015, Karachi Kings (KK) reported net
receivables of Rs. 12,000. During 2016 KK made sales on credit of Rs. 125,000 and received cash from
credit customers amounting to Rs. 115,500. At 31 December 2016, KK wished to write off debts of Rs.
7,100 and increase the allowance for receivable by Rs. 950 to Rs. 2,100. What is the net receivables
�igure at 31 December 2016?
(a) Rs. 12,300 (b) Rs. 13,450
(c) Rs. 14,400 (d) Rs. 15,550
Q.48 In the year ended 30 September 2018. Quetta Gladiators (QG) had sales of Rs. 7,000,000. Year-end
receivables amounted to 5% of annual sales. QG wishes to maintain the allowance for receivables at
4% receivables and as a result discovers that the allowance is 20% higher than at the previous year
end. During the year irrecoverable debts amounting to Rs. 3,200 were written off and debts amounting
to Rs. 450 and previously written off were recovered.
What are the bad and doubtful debt expenses for the year?
(a) Rs. 5,083 (b) Rs. 5,550
(c) Rs. 5,583 (d) Rs. 16,750
Q.49 Peshawar Zalmi (PZ) started the year with total receivables of Rs. 87,000 and an allowance for
receivables of Rs. 2,500. During the year, two speci�ic debts were written off, one for Rs. 800 and the
other for Rs. 550. A debt of Rs. 350 that had been written off as irrecoverable in the previous year was
paid during the year. At the year end, total receivables were Rs. 90,000 and the allowance for
receivables was Rs. 2,300.
What is the charge to the Statement of Pro�it or Loss for the year in respect of bad and doubtful debts?
(a) Rs. 800 (b) Rs. 1,00
(c) Rs. 1,150 (d) Rs. 1,550
Q.50 Which of the following debt has high risk?
(a) 45 days old (b) 60 days old
(c) 90 days old (d) above 90 days
Q.51 Which is the purpose of maintaining an allowance for doubtful debts receivables.
(a) Records irrecoverable debts without taking them account out of the book of an entity.
(b) Records the expense of irrecoverable debts.
(c) Have an estimate of future irrecoverable debts.
(d) Matches the estimate cost future irrecoverable debts against the revenue earned in giving rise
to the potential irrecoverable debt.
Q.52 Which of the following transaction will affect the receivable account?
(a) Allowance for bad & doubtful debt
(b) Allowance for bad & doubtful debt
(c) Bad debt expense account
(d) Trade discount
Q.53 Which two of the following transaction will affect the receivable account?
(a) Opening or Allowance for bad & doubtful debt account
(b) Increase/Decrease of Allowance for doubtful debt account
(c) Contra settlement
(d) Settlement/Cash/Early payment discount

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MULTIPLE CHOICE QUESTIONS (MCQ’S)

ANSWERS

A.1 c Rs.105,000
A.2 a Both statements are correct
A.3 b It will result in a decrease in net current assets
A.4 d A credit entry in the receivables account
A.5 b A charge of Rs.3,792
A.6 c A charge of Rs.7,292
A.7 b Prudence
A.8 d No entry
A.9 c Rs. 7,335
A.10
A.11 a Debit Credit
Bad debt expense Debtor
A.12 a It decreases both Assets and Pro�it
A.13 a Rs. 2,000
A.14 b Credit
A.15 d Rs. 4,750
A.16 a Contra asset account
A.17 d Rs. 1,500
A.18 d Rs. 10,000
A.19 a Total credit sales
A.20 c Decrease by Rs. 11,000
A.21 c Rs. 500
A.22 b Over 90 day old Receivables
A.23 a Dr Cash 1,000 Cr Bad and doubtful debts expense a/c Rs. 1,000
A.24 c Rs. 3,800
A.25 d Rs. 32,500
A.26 a It will increase net pro�it
A.27 d Contra asset account
A.28 b Yes, bad debt refers to an account receivable that has been clearly identi�ied as not being
collectible. Whereas a doubtful debt is an account receivable that might become a bad debt at
some point in the future
A.29 b Bad debt expense (debit) and accounts receivable (credit)
A.30 c 792,000
A.31 b 693,000
A.32 a Accounts receivable
A.33 d Aging analysis
A.34 b Rs.4,000

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A.35 d Rs. 4,200

A.36 a Pro�it will be reduced by Rs. 1,000
A.37 b The receivables account balance is written off when a speci�ic allowance for doubtful debts for
that customer is created
A.38 b Credit Bad debts expense
A.39 d A decrease in current assets
A.40 b Rs. 1,000 debits
A.41 a Rs. 44,244 as a current asset
A.42 d Records irrecoverable debts without taking them out of the books of an entity, thus showing the
gross and expected amount owned by trade receivables as a current asset
A.43 c Reduces the total of current assets
A.44 b The Statement of Pro�it or Loss
A.45 d A decrease of Rs. 549
A.46 a Rs. 6,766
A.47 a Rs. 12,300
A.48 a Rs. 5,083
A.49 a Rs. 800
A.50 d above 90 days
Records irrecoverable debts without taking them account out of the book of an entity.
A.51 a, d Matches the estimate cost future irrecoverable debts against the revenue earned in giving rise
to the potential irrecoverable debt.
A.52 c Bad debt expense account
Contra settlement
A.53 c, d
Settlement/Cash/Early payment discount

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