Which of the following statement is true?

(A) Provision for discount on debtors will be created only on good debtors.

(B) The following journal entry is recorded to create provision for discount on debtors: Profit and loss A/c Dr. To Provision for discount on debtors A/c.

(C) The provision for doubtful debts brought forward from the previous year is called the opening provision.

(D) The provision created for doubtful debts at the end of a particular year will be carried forward to the next year.

Choose the correct answer from the options given below.

(A), (B), (C), (D)

The correct answer is option 2- (A), (B), (C), (D).

(A) Provision for discount on debtors will be created only on good debtors. This statement is true. A business enterprise allows discount to its debtors to encourage prompt payments. Discount likely to be allowed to customers in an accounting year can be estimated and provided for by creating a provision for discount on debtors. Provision for discount is made on good debtors which are arrived at by deducting further bad debts and the provision for doubtful debts.

(B) The following journal entry is recorded to create provision for discount on debtors: Profit and loss A/c Dr. To Provision for discount on debtors A/c. This statement is true. Provision for discount is made on good debtors which are arrived at by deducting further bad debts and the provision for doubtful debts. The following journal entry is recorded to create provision for discount on debtors: Profit and loss A/c Dr. To Provision for discount on debtors A/c.

(C) The provision for doubtful debts brought forward from the previous year is called the opening provision. This statement is true. The provision for doubtful debts brought forward from the previous year is called the opening provision or old provision. When such a provision already exists, the loss due to bad debts during the current year are adjusted against the same and while making provision for doubtful debts required at the end of the current year is called new provision. The balance of old provision as given in the trial balance should also be taken into account.

(D) The provision created for doubtful debts at the end of a particular year will be carried forward to the next year. This statement is true.  The provision created for doubtful debts at the end of a particular year will be carried forward to the next year and it will be used for meeting the loss due to bad debts incurred during the next year.