Adjusting provision for doubtful debts to 3% of receivables Steps:

• Identify prior provision balance: $800 on 1 August 2019.
• Calculate required provision at 31 August 2020: 3% of trade receivables (results in $1,184 total needed).
• Determine adjustment amount: $1,184 -$800 = $384 increase.
• Record entry: Debit Income Statement (bad debts expense) $384, Credit Provision for Doubtful Debts$384.

Why A is correct:

• It records the bad debts expense in the income statement and increases the provision account, following the matching principle in accrual accounting.

Why the others are wrong:

• B: Uses incorrect adjustment amount of $1,284, overstating the increase.
• C: Fails to debit the income statement, omitting recognition of the expense.
• D: Uses incorrect amount and omits income statement debit, invalidating the entry.

Final answer: A