Provision for discount is made on.............. which are arrived at by deducting further bad debts and the...................

Good debtors, Provision for doubtful debts

The correct answer is option 1- Good debtors, Provision for doubtful debts.

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. 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.