AccountsISC Class 11 · Final Accounts of a Sole Trader

Balance Sheet, Bad Debts, Provisions and Owner's Drawings: ISC Class 11 Accounts

Updated 17 October 2026 · Fact-checked

The Balance Sheet lists assets and liabilities on a date, arranged either in order of liquidity or of permanence (marshalling). Bad debts are an expense; a provision for doubtful debts is created on the good debtors left after bad debts, and a provision for discount on debtors on the debtors after both. Goods taken by the owner are deducted from purchases and added to drawings.

Deduct in order: bad debts first, then 5% doubtful-debt provision on 9,000, then 2% discount provision on 8,550; the net figure goes to the balance sheet.

Illustration drawn for QuestionBuddy.

Understand Balance Sheet, Bad Debts, Provisions and Goods Taken by the Owner

Bad debts and provisions.

*Bad debts (further):* debited to Profit and Loss; deduct from debtors in the balance sheet.
*Provision for doubtful debts (PDD):* a percentage of debtors (after further bad debts). Charge to Profit and Loss = New provision - Old provision. If the old provision is larger, the difference is a gain (credit).
*Provision for discount on debtors (PDD-Disc):* percentage on debtors after bad debts and after provision for doubtful debts. Charge = new - old.
*Bad debts recovered:* credited to Profit and Loss.

Goods taken by the owner / free samples. Goods withdrawn: credit Purchases in the Trading Account (deduct from purchases) and add to drawings, which are deducted from capital. Free samples: deducted from purchases and charged as advertisement in the Profit and Loss. Abnormal loss of goods (fire, theft): deducted from purchases and debited to Profit and Loss as a loss (net of insurance claim).

Balance Sheet. Liabilities side: capital (opening + net profit - drawings), long-term liabilities, current liabilities (creditors, outstanding expenses). Assets side: fixed assets (net of depreciation), investments, current assets (stock, debtors net of provisions, prepaid expenses, accrued income, cash and bank).

Marshalling. *Order of liquidity:* most liquid first (cash) to least liquid (land). *Order of permanence:* most permanent first (land) to least (cash). Liabilities mirror: permanence puts capital first; liquidity puts current liabilities first.

Capital account. Opening capital + Net profit + Additional capital - Drawings (cash and goods, interest on drawings if any) = Closing capital.

Balancing check. Total liabilities including capital equals total assets.

Balance Sheet, Bad Debts, Provisions and Goods Taken by the Owner: key facts

Provision for doubtful debts: PDD = Rate x (Debtors - Further bad debts) | Charge = New PDD - Old PDD; Credit if the old is larger.
Provision for discount: Discount provision = Rate x (Debtors - Bad debts - PDD) | Charge = New - Old; On good debtors.
Closing capital: Closing capital = Opening capital + Net profit - Drawings (cash + goods) | Drawings include goods at cost; Balance Sheet.

How to answer Balance Sheet, Bad Debts, Provisions and Goods Taken by the Owner questions

Work out each adjustment in turn, then build the Balance Sheet.

1Deduct further bad debts from debtors.
2Find the new provisions on the reduced debtors.
3Charge the net change to Profit and Loss.
4Prepare the Balance Sheet and check the totals.

Balance Sheet, Bad Debts, Provisions and Goods Taken by the Owner in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Provision for doubtful debts

Suppose a wholesaler has debtors of Rs 2,00,000, of which Rs 8,000 is a certain loss, and expects about 5% of the rest to default. The old provision was Rs 6,000.

What amount is charged to profit for bad debts and provision?

Try it first, then show the solutionSolution

Good debtors = 1,92,000; new provision = 5% = 9,600.
Provision charge = 9,600 - 6,000 = 3,600.
Total charge = 8,000 + 3,600 = 11,600.

Answer: Rs 11,600 charged to Profit and Loss.

Memory hook: Bad debts first, then provision on what is left.

Tricks to remember Balance Sheet, Bad Debts, Provisions and Goods Taken by the Owner

Short memory aids. Say each one aloud once, then use it on a question the same day.

Reduce then provide
First reduce debtors by bad debts, then apply the rate.
Use it when: Provision.
New less old
Charge = new provision minus old provision.
Use it when: P&L effect.
Drawings reduce capital
Goods taken are drawings at cost.
Use it when: Capital.

Balance Sheet, Bad Debts, Provisions and Goods Taken by the Owner: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Presentation · 1 mark · MCQBoard level

In the order of liquidity, the first asset listed is:
(a) land (b) cash (c) debtors (d) goodwill

Try it first, then show the solutionSolution

Most liquid is cash.

Answer: (b) cash

Example 2: Provision calculations · 6 marks · Long answerBoard level

Debtors Rs 1,00,000; further bad debts Rs 4,000; old provision for doubtful debts Rs 3,000; new provision 5%; provision for discount on debtors 2% (old nil). Bad debts in the trial balance Rs 2,000. Find the total charge to Profit and Loss and the debtors figure in the balance sheet. (6 marks)

Try it first, then show the solutionSolution

Debtors after bad debts = 96,000; new PDD = 4,800.
PDD charge = 4,800 - 3,000 = 1,800.
Discount provision = 2% of (96,000 - 4,800) = 2% of 91,200 = 1,824.
Total charge = 2,000 + 4,000 + 1,800 + 1,824 = 9,624.
Debtors net = 96,000 - 4,800 - 1,824 = 89,376.

Answer: Charge to Profit and Loss Rs 9,624; debtors in the balance sheet Rs 89,376.

Example 3: Goods taken by the owner · 6 marks · Long answerHarder board level

Purchases in the trial balance are Rs 3,60,000. The owner took goods at cost Rs 6,000 for his use and Rs 2,000 as free samples; goods costing Rs 9,000 were destroyed by fire, insurance admitted Rs 5,000. Find the purchases figure in Trading Account and the charge to Profit and Loss. (6 marks)

Try it first, then show the solutionSolution

Deduct 6,000 + 2,000 + 9,000 = 17,000 from purchases: 3,43,000.
Drawings Rs 6,000 (to capital); advertisement Rs 2,000.
Loss by fire = 9,000 - 5,000 = Rs 4,000; claim is a receivable of 5,000.

Answer: Purchases in Trading Account Rs 3,43,000; P&L charges: advertisement 2,000 and loss by fire 4,000.

Example 4: Balance sheet · 7 marks · Long answerHarder board level

Prepare the Balance Sheet (order of liquidity) from: opening capital 3,00,000; net profit 90,000; cash drawings 30,000; goods drawn 6,000; creditors 70,000; outstanding salaries 5,000; bank loan 1,00,000; land and building 2,00,000; machinery (net) 1,50,000; debtors 96,000 after bad debts with PDD 4,800 and discount provision 1,824; stock 60,000; prepaid expenses 3,000. Find the cash and bank balance. (7 marks)

Try it first, then show the solutionSolution

Closing capital = 3,00,000 + 90,000 - 36,000 = 3,54,000.
Liabilities total = 3,54,000 + 70,000 + 5,000 + 1,00,000 = 5,29,000.
Debtors net = 96,000 - 4,800 - 1,824 = 89,376.
Assets except cash = 2,00,000 + 1,50,000 + 89,376 + 60,000 + 3,000 = 5,02,376.
Cash and bank = 5,29,000 - 5,02,376 = Rs 26,624.

Answer:

Liabilities	Rs	Assets	Rs
Creditors	70,000	Cash and bank	26,624
Outstanding salaries	5,000	Debtors (net)	89,376
Bank loan	1,00,000	Stock	60,000
Capital	3,54,000	Prepaid expenses	3,000
		Machinery	1,50,000
		Land and building	2,00,000
Total	5,29,000	Total	5,29,000

Example 5: Effect of a missed provision · 5 marks · Long answerHOTS / competency

A trader forgot to charge Rs 4,000 further bad debts and a new 5% provision on debtors of Rs 1,20,000 (old provision Rs 2,500). Find the correct effect on net profit and on the balance sheet debtors. (5 marks)

Try it first, then show the solutionSolution

Debtors after bad debts = 1,16,000; new provision = 5,800; provision charge = 5,800 - 2,500 = 3,300.
Profit falls by 4,000 + 3,300 = 7,300.
Debtors in the balance sheet = 1,16,000 - 5,800 = 1,10,200, against 1,20,000 - 2,500 = 1,17,500 shown earlier.

Answer: Net profit falls by Rs 7,300; net debtors become Rs 1,10,200.

Where students lose marks in Balance Sheet, Bad Debts, Provisions and Goods Taken by the Owner

The slips examiners see most often, and what to write instead.

Mistake: Provision on gross debtors
Forgetting to deduct bad debts.
Wrong working
5% of 1,00,000 = 5,000
Right working
5% of 96,000 = 4,800
Do this: Deduct further bad debts first.
Usually costs: 2 marks.
Mistake: Charging the full new provision
Ignoring the old provision.
Wrong working
4,800 charged
Right working
4,800 - 3,000 = 1,800
Do this: New less old.
Usually costs: 2 marks.
Mistake: Goods drawn left in purchases
Forgetting the adjustment.
Wrong working
Purchases 3,60,000
Right working
Purchases less 6,000 (to drawings)
Do this: Credit purchases.
Usually costs: 2 marks.

Exam tips

Show the provision working in a note.
Write drawings in two lines: cash and goods.
Tick the Balance Sheet total against the other side.

Practice questions on Balance Sheet, Bad Debts, Provisions and Goods Taken by the Owner

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
A provision for discount on debtors is calculated on:
(a) total debtors (b) debtors after bad debts and provision for doubtful debts (c) sales (d) creditors
Hint
Good debtors.
Answer
(b) debtors after bad debts and provision for doubtful debts
Q2 · 3 marks · Short answerBoard level
Distinguish between the order of liquidity and the order of permanence of assets in the balance sheet. (3 marks)
Hint
Which comes first.
Answer
Order of liquidity starts with cash, the most liquid, and ends with fixed assets. Order of permanence starts with fixed assets and ends with cash.
Q3 · 6 marks · Long answerHarder board level
Debtors Rs 1,50,000; further bad debts Rs 6,000; old PDD Rs 5,000; new PDD 4%; old discount provision Rs 1,500; new discount provision 2%. Bad debts already in trial balance Rs 3,000. Find the net charge to Profit and Loss and net debtors. (6 marks)
Hint
Debtors after bad debts = 1,44,000.
Answer
New PDD = 5,760; charge = 760. Discount provision = 2% of (1,44,000 - 5,760) = 2,764.80; charge = 1,264.80. Total charge = 3,000 + 6,000 + 760 + 1,264.80 = Rs 11,024.80. Net debtors = 1,44,000 - 5,760 - 2,764.80 = Rs 1,35,475.20.
Q4 · 5 marks · Long answerHarder board level
Capital at the start Rs 4,00,000; net profit Rs 1,20,000; the owner withdrew Rs 8,000 each month in cash and goods of Rs 12,000 (cost); he added Rs 50,000 as new capital in the year. Find the closing capital and show the balance sheet totals if liabilities (other than capital) are Rs 1,30,000. (5 marks)
Hint
Cash drawings 96,000.
Answer
Drawings = 96,000 + 12,000 = 1,08,000. Closing capital = 4,00,000 + 50,000 + 1,20,000 - 1,08,000 = 4,62,000. Balance sheet total = 4,62,000 + 1,30,000 = Rs 5,92,000.
Q5 · 4 marks · Short answerHOTS / competency
A trader takes goods for himself at selling price Rs 8,000 (cost Rs 6,400) and records the sale price in drawings, crediting Purchases with the same Rs 8,000. Find the error and its effect on net profit. (4 marks)
Hint
At cost.
Answer
Goods must be recorded at cost Rs 6,400. Crediting 8,000 reduces purchases by 1,600 more than correct, so cost of goods sold is understated and profit overstated by Rs 1,600; drawings are also overstated by 1,600.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Provision charge equals?Show answer
New provision minus old provision.
2.Provision for discount is on?Show answer
Debtors after bad debts and provision for doubtful debts.
3.Goods drawn credit which account?Show answer
Purchases.
4.Order of liquidity starts with?Show answer
Cash.
5.Bad debts recovered go to?Show answer
Credit of Profit and Loss.

Balance Sheet, Bad Debts, Provisions and Goods Taken by the Owner: frequently asked questions

Is provision a liability?

No, it is deducted from debtors.

Is interest on drawings income?

Yes, credited to Profit and Loss.

Free sample treatment?

Advertisement expense.

Abnormal loss?

Debited to Profit and Loss.