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WAEC Financial Accounting 2016 Question 19

Question 19

Bad Debts and Provisions

Which of the following would result from an increase in the provision for doubtful debts?

  1. A.A decrease in gross profit
  2. B.A decrease in net profit
  3. C.An increase in gross profit
  4. D.An increase in net profit
Show the answer and explanation

Answer: B (A decrease in net profit)

Explanation

An increase in the provision is charged to profit and loss, reducing net profit; gross profit is not affected.