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Bad Debts And Provision For Bad Debts: Meaning - SS1 Accounting Past Questions and Answers - page 1

1

What are bad debts?

A

Amounts owed by a business to its suppliers

B

Amounts owed to a business by its customers that are unlikely to be paid in full

C

Expenses incurred by a business on repairing its equipment

D

Costs associated with shipping products to customers

correct option: b
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2

What is a provision for bad debts?

A

A legal document that allows a business to recover its bad debts

B

An accounting entry that sets aside a portion of a company's revenue to cover potential future losses from bad debts

C

A loan that a business takes to cover its bad debts

D

A strategy that a business uses to avoid bad debts

correct option: b
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3

What can be the reasons for bad debts?

A

Customers not being satisfied with the products

B

Customers defaulting on their payments

C

The business not being able to deliver products on time

D

All of the above

correct option: b
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4

Why is a provision for bad debts important in accounting?

A

It helps a business to manage its cash flow

B

It helps a business to avoid bad debts

C

It helps a business to increase its revenue

D

It helps a business to reduce its expenses

correct option: a
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5

Which of the following represents the actual losses a business incurs from bad debts?

A

Bad debts

B

Provision for bad debts

C

Accounts receivable

D

Accounts payable

correct option: a
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6

Define bad debts in simple terms.

Bad debts refer to the amounts owed to a business by its customers or clients that are unlikely to be paid in full.

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7

Why is a provision for bad debts important in accounting?

A provision for bad debts is important in accounting because it sets aside a portion of a company's revenue to cover potential future losses from bad debts, which helps a business to manage its cash flow and ensure that its financial statements accurately reflect its financial position.

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