Which of the following activities will increase profits?
Depreciation charges
Reduction in provision for doubtful debts
Undervalued closing stock
Returns inwards
Correct answer is B
The provision for doubtful debts is the estimated amount of bad debt that will arise from accounts receivable (credit sales) that have been issued but not yet collected.
If a business estimated 20,000 as bad debts, a reduction to a lesser amount means the business will make more money from sales, which amounts to higher profits.