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WAEC Financial Accounting 1995 Question 1

Question 1

Bad Debts and Provisions

Which of the following is the effect of a reduction in the provision for doubtful debts?

  1. A.Reduction in net profit
  2. B.Reduction in cash balance
  3. C.Reduction in gross profit
  4. D.Increase in gross profit
  5. E.Increase in net profit.
Show the answer and explanation

Answer: E (Increase in net profit.)

Explanation

A smaller provision is credited to profit and loss, so net profit rises (gross profit is not affected).