A Sole Trader Has a Number of Debtors

question 14

Multiple Choice

A Sole Trader has a number of debtors.The total amount in the Sales Ledger at the end of the financial year is £5,600.However,it is discovered that one debtor who owes £400 has just been declared bankrupt.Past experience shows that approximately 2% of debts are never repaid,and therefore a provision equal to 2% of closing debtors is required.There is currently a provision of £80.Which of the following is the correct adjustment for the provision for bad debts?

• A) Make a new provision for bad debts at £112
• B) Increase the current provision by £24
• C) Make a new provision for bad debts at £104
• D) Increase the current provision by £32

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Definitions:

Purchase Returns

Transactions where buyers return previously purchased merchandise to the seller, often because of defects or errors in the shipment.

Returns

The process of a customer returning previously purchased merchandise back to the seller, or the amount of profit generated from an investment.

Gross Margin Ratio

A financial indicator that calculates the disparity between sales and the cost of goods sold, represented as a portion of sales revenue.

Net Sales

The total revenue from sales reduced by returns, allowances for damaged or missing goods, and discounts.