Decreasing the provision for doubtful debts increases profit

Steps:

• Identify opening provision for doubtful debts: 285,000.
• Note the specified decrease: 20,000, resulting in closing provision of 265,000.
• Record the journal entry: debit provision account 20,000 (reduces liability) and credit income statement 20,000 (increases profit).
• Confirm no other adjustments needed, as receivables balance is given but not required for provision change.

Why D is correct:

• D reflects the 20,000 credit to profit from reducing the provision, per accounting standards (IAS 39/IFRS 9) where excess provisions are released to income.

Why the others are wrong:

• A incorrectly treats the decrease as an expense, debiting profit.
• B miscalculates the closing provision as 305,000, adding instead of subtracting.
• C ignores the profit impact, focusing only on receivables balance.

Final answer: D