In a statement of affairs, a provision for doubtful debts is normally treated by:
Correct answer: B. Deducting it from trade debtors
- A. Adding it to trade debtors
- B. Deducting it from trade debtors
- C. Adding it to trade creditors
- D. Deducting it from business liabilities
Explanation
A provision for doubtful debts reduces the estimated recoverable value of trade debtors. Therefore, it is deducted from the gross debtors balance when determining net assets.
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About Incomplete Records
Incomplete records require profit and financial position to be reconstructed when a complete double-entry system is unavailable. Methods include statements of affairs, capital comparisons, control accounts, cash summaries and margin calculations to find missing sales, purchases, expenses, assets, liabilities and drawings, while distinguishing business profit from changes in capital.
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