Adjusting general provision to 5% of trade receivables Steps:

• Note trade receivables balance of $200 at start, with no other changes specified.
• Compute required provision: 5% × $200 =$10 credit balance needed.
• Treat $20 irrecoverable as specific bad debt: debit bad debts expense$20, credit trade receivables 180, but provision based on policy).
• Record year-end provision entry: debit bad debts expense $10, credit provision for doubtful debts$10.

Why B is correct:

• Policy mandates general provision at 5% of trade receivables ($200 × 5$10), requiring a credit entry to the provision account.

Why the others are wrong:

• A. Debit $10 reduces provision unnecessarily, as policy requires building or maintaining the credit balance.
• C. Debit $20 applies to direct write-off of specific irrecoverable debt, not the general provision account.
• D. Credit $20 uses the irrecoverable debt figure instead of the calculated 5% provision amount.

Final answer: B