Use the information below to answer the question that follows: Debtors ₦20 Provision for bad debts 10% Provision for discount on debtors 5% The provision fo...
Question 1 Report
Use the information below to answer the question that follows:
The provision for bad debt is?
Answer Details
The provision for bad debt is ₦2000.
Explanation:
A provision for bad debt is an estimated amount set aside by a business to cover potential losses that may arise from customers who fail to pay their debts. In this case, the debtors owe ₦20, and the provision for bad debts is given as 10%.
Therefore, to calculate the provision for bad debt, we multiply the debtors by the percentage provision for bad debt:
10% of ₦20 = (10/100) x ₦20 = ₦2
Hence, the provision for bad debt is ₦2,000 (since the debtors owe ₦20).
Note: The provision for discount on debtors is not used in the calculation of the provision for bad debts. It is a provision set aside for potential discounts that may be offered to customers for early payment.
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