Theory Base of Accounting — Account STD 11 Commerce — Question

If a cheque received from a customer is dishonoured, it will be debited to the Customer's Account.

“Provision" is a charge against profits.

Making excessive provision for doubtful debts builds up the secret reserves in the business.

Convention of Prudence results in understatement of profits and assets and overstatement of liabilities.

Written down value method is followed so that the total burden on Profit and Loss Account in respect of depreciation and repairs put together remains almost equal each year.

Capital reserves are normally created out of free or distributable profits.

Creation of reserves is discretionary.

A contra entry is one which does not require posting to the ledger.

General reserve can be used only for some specific purposes.

Provision is made to meet an unknown liability.