The following accounting entries are made when bad debt is recovered
Debit bad debts accounts and credit bad debt recovered account
Debit debtors accounts and recovered account
Debit bad debts recovered account and credit bad debts account
Debit bad debts account and credit profit and loss account
Correct answer is D
At times a debtor whose account had earlier been written off by a creditor as a bad debt may decide to make a payment, this is called recovery of bad debts. While posting the journal entry for recovery of bad debts it is important to note that it is treated as a gain to the business & that the debtor should not be credited as in case of sales.
While journalizing for bad debts, debtor’s personal account is credited and bad debts account is debited because bad debts written off are treated as a loss to the business and now when they are recovered it is seen as a fresh gain.
Journal entry for recovery of bad debts is as follows;
| Cash or Bank A/C | Debit | Real A/C | Dr. What comes in |
| To Bad Debts Recovered A/C | Credit | Nominal A/C | Cr. income & gains |
Debit (Cash or Bank) depending on how the money is received
Rules applied as per modern or US style of accounting
| Cash/Bank A/c | Debit the increase in assets |
| Bad Debts Recovered A/c | Credit the increase in income |
The closing journal entry for bad debts recovered would be as follows;
| Bad Debts Recovered A/C | Debit |
| To Profit and Loss A/C | Credit |
Derive the stock turnover period.(Average stock = 23,000. Cost of sales = 300,000 year = 365 days).
28 days
42 days
27 days
23 days
Correct answer is A
Average stock / cost of sales x 365days.
23,000 ÷ 300,000 x 365 = 27.9 (Approximately 28 days)
What does liquidity ratio measure?
Measures operating efficiency of a company
Measures the ability of a company to meet its current obligations
Measures the value of investments of a company
Measures the financial leverage of a company
Correct answer is B
Liquidity ratio attempt to measure the ability to meet up with current obligations e.g. current ratio which measures the current asset to current liabilities.
Marching
Consistency
Realization
Prudence
Correct answer is D
Prudence Concept or Conservatism principle is a key accounting principle which makes sure that assets and income are not overstated and provision is made for all known expenses and losses whether the amount is known for certain or just an estimation i.e expenses and liabilities are not understated in the books of account
Which of the following is not a proper form of the accounting equation?
Fixed assets + current assets - liabilities = capital
Fixed assests + current assests + liabilities = capital
Fixed assets – liabilities + current assets = capital
Fixed asset + current asset – capital = liabilities
Correct answer is B
The simplest presentation of capital employed is total assets minus current liabilities. Sometimes, it is equal to all current equity plus interest-generating loans (non-current liabilities).