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      Question

      Creating a provision for doubtful debts shows a more

      realistic amount of collectible debts at the end of the accounting year. Such a practice is in compliance with the: 
      A Matching principle Correct Answer Incorrect Answer
      B Principle of conservatism Correct Answer Incorrect Answer
      C Double- entry system Correct Answer Incorrect Answer
      D Going concern convention Correct Answer Incorrect Answer

      Solution

      Creating a provision for doubtful debts means recognizing that some customers may not pay what they owe. This reduces the receivables to a more realistic (lower but safer) amount. This practice follows the: Principle of Conservatism (Prudence) Anticipate all expected losses but do not anticipate gains. • We record possible losses (bad debts) • We do not overstate assets or income Other options: • Matching principle → Match revenue with related expenses. • Double-entry system → Every transaction has two effects. • Going concern → Business will continue in future.

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