Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
1
When calculating the provision for cash discount on debtors, which base value should be used?
Answer:
Net debtors less provision for doubtful debts
The provision for cash discount is calculated only on the amount of debtors expected to actually pay their debts. Therefore, one must first deduct the provision for doubtful debts from the total debtors to arrive at the net realizable value, and then apply the discount percentage to that remaining balance.
2
What is the appropriate journal entry to record a reserve for discounts on accounts payable?
Answer:
Debit Reserve for Discount on Accounts Payable A/c and Credit P&L A/c
A reserve for discounts on accounts payable is created to anticipate future discounts. When this reserve is adjusted or reversed, the entry involves debiting the reserve account and crediting the Profit and Loss account. This effectively recognizes the discount as an income or a reduction in expenses, aligning with the accrual principle of accounting by matching the expected benefit to the relevant period.