25 Lecture - Provision for Bad Debts and Control Accounts

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25 Lecture

MGT101

Midterm & Final Term Short Notes

Provision for Bad Debts and Control Accounts

Provision for bad debts and control accounts are important concepts in accounting that help businesses to manage their accounts receivable and maintain financial stability. A provision for bad debts is a reserve set aside to cover potential loss


Important Mcq's
Midterm & Finalterm Prepration
Past papers included

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  1. What is a provision for bad debts? a) A reserve set aside to cover potential losses from customers who may default on their payments b) A reserve set aside to cover potential profits from customers who may default on their payments c) A reserve set aside to cover potential expenses from customers who may default on their payments Answer: a

  2. How does a provision for bad debts impact a business's financial statements? a) It increases the value of accounts receivable on the balance sheet b) It decreases the value of accounts receivable on the balance sheet c) It has no impact on the value of accounts receivable on the balance sheet Answer: b

  3. What are control accounts? a) Accounts that provide a summary of all transactions related to a particular category of accounts b) Accounts that provide a summary of all transactions related to a particular invoice c) Accounts that provide a summary of all transactions related to a particular supplier Answer: a

  4. How can businesses use control accounts? a) To track and manage their accounts payable and accounts receivable b) To track and manage their inventory c) To track and manage their fixed assets Answer: a

  5. What is the purpose of a control account? a) To provide a summary of all transactions related to a particular category of accounts b) To provide detailed information about each individual transaction c) To provide information about the financial performance of a business Answer: a

  6. What is the journal entry to record a provision for bad debts? a) Debit bad debts expense, credit accounts payable b) Debit accounts receivable, credit bad debts expense c) Debit provision for bad debts, credit bad debts expense Answer: c

  7. How can businesses reduce the risk of bad debts? a) By performing credit checks on customers b) By increasing their credit limits for customers c) By extending payment terms for customers Answer: a

  8. What is the impact of a provision for bad debts on a business's income statement? a) It increases net income b) It decreases net income c) It has no impact on net income Answer: b

  9. How can businesses determine the appropriate amount for a provision for bad debts? a) By estimating the percentage of accounts receivable that may be uncollectible b) By calculating the total amount of accounts receivable c) By calculating the total amount of accounts payable Answer: a

  10. What is the purpose of a provision for bad debts? a) To account for potential losses from customers who may default on their payments b) To account for potential profits from customers who may default on their payments c) To account for potential expenses from customers who may default on their payments Answer: a



Subjective Short Notes
Midterm & Finalterm Prepration
Past papers included

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  1. What is a control account? Answer: A control account is an account that provides a summary of all transactions related to a particular category of accounts, such as accounts payable or accounts receivable.

  2. Why is it important for businesses to maintain a provision for bad debts? Answer: Maintaining a provision for bad debts is important for businesses to account for potential losses from customers who may default on their payments and maintain financial stability.

  3. 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.

  4. What is the purpose of a provision for bad debts in financial reporting? Answer: The purpose of a provision for bad debts in financial reporting is to account for potential losses from customers who may default on their payments and reduce the impact of those losses on a business's financial statements.

  5. What is the journal entry to record a provision for bad debts? Answer: The journal entry to record a provision for bad debts is to debit the provision for bad debts account and credit the bad debts expense account.

  6. What is the impact of a provision for bad debts on a business's balance sheet? Answer: The impact of a provision for bad debts on a business's balance sheet is to decrease the value of accounts receivable.

  7. How can businesses use control accounts to manage their accounts payable? Answer: Businesses can use control accounts to track and manage their accounts payable by recording all transactions related to accounts payable in the control account.

  8. How can businesses determine the appropriate amount for a provision for bad debts? Answer: Businesses can determine the appropriate amount for a provision for bad debts by estimating the percentage of accounts receivable that may be uncollectible.

  9. What is the purpose of a control account? Answer: The purpose of a control account is to provide a summary of all transactions related to a particular category of accounts and facilitate the management of those accounts.

  10. How can businesses use control accounts to manage their accounts receivable? Answer: Businesses can use control accounts to track and manage their accounts receivable by recording all transactions related to accounts receivable in the control account.

Provision for bad debts is an accounting technique used to account for potential losses from customers who may default on their payments. This provision is set aside by businesses to reduce the impact of these losses on their financial statements. The amount of the provision is estimated based on the percentage of accounts receivable that may be uncollectible. The provision for bad debts is typically recorded as an expense in the income statement. Control accounts are summary accounts that provide a summary of all transactions related to a particular category of accounts, such as accounts payable or accounts receivable. These accounts help businesses to manage and monitor their accounts more effectively. By recording all transactions related to accounts receivable in the control account, businesses can keep track of outstanding balances, identify overdue payments, and monitor the creditworthiness of their customers. Control accounts can also be used to manage accounts payable by recording all transactions related to accounts payable in the control account. This provides businesses with a summary of all outstanding payments and helps them to manage their cash flow more effectively. The provision for bad debts and control accounts are closely related since they both play a crucial role in managing a business's accounts receivable. The provision for bad debts helps businesses to account for potential losses, while control accounts help them to manage and monitor outstanding balances. Together, these tools provide businesses with a comprehensive solution for managing their accounts receivable and reducing the risk of bad debts.

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