Further adjustments to Accounts Flashcards
Does provision for doubtful debts increase or decrease profit for the year
Decreases Profit for the year
This is because a provision for doubtful debts is an expense. It represents the estimated amount of receivables (money owed to the business) that might not be collected.
When a company makes a provision, it assumes that some customers won’t pay what they owe.
This potential loss is treated as a bad debt expense, even though the customer hasn’t officially defaulted yet.
Because it’s an expense, it’s recorded in the income statement and reduces the net profit
Does profit or loss on disposal of van increase or decrease profit for the year
It does BOTH depending on the sale price and book value of the asset
When a business disposes an asset, the difference between sale price and the assets book value are recorded as
- Profit on disposal -> sale price is more than the book value
OR - Loss on disposal -> sale price is less than the book value
Does goods bought on sale or return but not yet sold increase or decrease profit for the year
It decreases profit for the year
The sale has not occurred
Does a cheque received from Cove LTD increase or decrease profit for the year
It increases profit for the year
Cheques received are incomes of money into the business. This will increase the profit for the year
