Read the given below two statements and mark the correct answer.
Assertion (A): Bad debts are shown on the debit side of the profit and loss account.
Reason (R) : They are deducted from debtors in the balance sheet.
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
Assertion (A): Bad debts are shown on the debit side of the profit and loss account. THIS IS TRUE. Bad debts refer to the amount that the firm has not been able to realise from its debtors. It is regarded as a loss and is termed as bad debt and shown on the debit side of profit and loss account.
Reason (R) : They are deducted from debtors in the balance sheet. THIS IS TRUE. Bad debts are deducted from debtors to know the remaining debtors from whom the amount is to be collected.
Thus, both statements are true but reason does not explain assertion.