24 Lecture - Debtors, Creditors, Accruals and Provision for Bad Debts

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24 Lecture

MGT101

Midterm & Final Term Short Notes

Debtors, Creditors, Accruals and Provision for Bad Debts

Debtors and creditors are important terms in accounting that represent the amounts owed to a business by its customers and the amounts owed by a business to its suppliers, respectively. Accruals are expenses that have been incurred but not yet p


Important Mcq's
Midterm & Finalterm Prepration
Past papers included

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  1. What are debtors in accounting? a. Money owed to suppliers b. Money owed by a business to its customers c. Money owed by customers to a business Answer: c. Money owed by customers to a business

  2. What are creditors in accounting? a. Money owed by suppliers to a business b. Money owed by a business to its customers c. Money owed by customers to a business Answer: a. Money owed by suppliers to a business

  3. What is the purpose of an accrual? a. To record expenses that have been paid b. To record expenses that have not yet been paid c. To record revenue that has been earned Answer: b. To record expenses that have not yet been paid

  4. What is the provision for bad debts? a. A reserve set aside to cover potential losses from customers who may default on their payments b. An expense incurred but not yet paid c. Money owed by a business to its suppliers Answer: a. A reserve set aside to cover potential losses from customers who may default on their payments

  5. Which account represents money owed to a business by its customers? a. Debtors b. Creditors c. Accruals Answer: a. Debtors

  6. Which account represents money owed by a business to its suppliers? a. Debtors b. Creditors c. Accruals Answer: b. Creditors

  7. What is the journal entry to record an accrual? a. Debit expense, credit cash b. Debit expense, credit accrual c. Debit accrual, credit cash Answer: b. Debit expense, credit accrual

  8. What is the journal entry to record a provision for bad debts? a. Debit bad debts, credit cash b. Debit bad debts, credit provision for bad debts c. Debit provision for bad debts, credit cash Answer: c. Debit provision for bad debts, credit cash

  9. How does the provision for bad debts impact the balance sheet? a. Increases assets and decreases liabilities b. Decreases assets and increases liabilities c. Increases assets and increases liabilities Answer: b. Decreases assets and increases liabilities

  10. What is the purpose of managing debtors, creditors, accruals, and provision for bad debts? a. To maintain a healthy cash flow b. To maximize profits c. To minimize expenses Answer: a. To maintain a healthy cash flow



Subjective Short Notes
Midterm & Finalterm Prepration
Past papers included

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  1. What is the difference between debtors and creditors? Answer: Debtors are customers who owe money to a business, while creditors are suppliers who are owed money by a business.

  2. Why is it important for businesses to manage their debtors and creditors? Answer: Proper management of debtors and creditors helps to maintain a healthy cash flow, which is essential for the financial stability of a business.

  3. What are accruals in accounting? Answer: Accruals are expenses that have been incurred but not yet paid.

  4. How do accruals impact a business's financial statements? Answer: Accruals increase expenses and liabilities on a business's financial statements.

  5. What is a provision for bad debts? Answer: A provision for bad debts is a reserve set aside to cover potential losses from customers who may default on their payments.

  6. How does the provision for bad debts impact a business's financial statements? Answer: The provision for bad debts decreases the value of accounts receivable on a business's balance sheet.

  7. Why is it important for businesses to have a provision for bad debts? Answer: A provision for bad debts helps businesses to account for potential losses from customers who may default on their payments, which helps to maintain the financial stability of the business.

  8. How can businesses reduce the risk of bad debts? Answer: Businesses can reduce the risk of bad debts by performing credit checks on customers, setting credit limits, and implementing a collection policy.

  9. What is the journal entry to record a provision for bad debts? Answer: Debit provision for bad debts, credit bad debts expense.

  10. How can businesses improve their management of debtors and creditors? Answer: Businesses can improve their management of debtors and creditors by implementing a credit control system, negotiating payment terms with suppliers, and regularly reviewing their accounts receivable and accounts payable.

Debtors, creditors, accruals, and provisions for bad debts are important concepts in accounting that businesses must understand to manage their finances effectively. Debtors are customers who owe money to a business, while creditors are suppliers who are owed money by a business. Accruals are expenses that have been incurred but not yet paid, while a provision for bad debts is a reserve set aside to cover potential losses from customers who may default on their payments. Managing debtors and creditors is crucial for maintaining a healthy cash flow, which is essential for the financial stability of a business. Effective management of accruals and provisions for bad debts helps businesses to account for potential losses and maintain their financial stability. Businesses can reduce the risk of bad debts by performing credit checks on customers, setting credit limits, and implementing a collection policy. In summary, understanding and effectively managing debtors, creditors, accruals, and provisions for bad debts is essential for businesses to maintain their financial stability, manage cash flow, and minimize the risk of financial losses.

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