In preparing the final accounts, the bad debt account is closed by a transfer to the?
Answer Details
In preparing the final accounts, the bad debt account is closed by a transfer to the profit and loss account.
A bad debt is an amount owed by a customer that is unlikely to be paid, and therefore, it is written off as a loss by the business. The bad debt account is used to record such losses.
At the end of the accounting period, the balance in the bad debt account needs to be closed and transferred to the appropriate account. Since the bad debt is a loss, it is transferred to the profit and loss account.
The profit and loss account summarizes the revenues and expenses of the business and calculates the net profit or loss for the accounting period. By transferring the bad debt to the profit and loss account, the amount of the loss is accounted for in the calculation of the net profit or loss.
The balance sheet, on the other hand, is a statement that shows the financial position of the business at a specific point in time, and it does not directly account for losses or gains.
The provision for bad debt account is a contra asset account used to reduce the value of accounts receivable to their estimated realizable value. It is not used to close the bad debt account.
The trading account is an account that shows the gross profit or loss of a business for the accounting period. It does not account for bad debts or any other expenses or losses.
Therefore, in preparing the final accounts, the bad debt account is closed by a transfer to the profit and loss account.