Provision Reduction Due to Unchanged Rate and Decreased Receivables Base

Steps:

• Provision for doubtful debts uses a fixed percentage rate applied to receivables.
• Debit entry to the provision account reduces the allowance balance.
• With unchanged rate, reduced provision implies the receivables base decreased.
• Identify factors causing receivables decrease: better collections or direct reduction in total balance.

Why A is correct:

• Improved credit control (1) accelerates collections, lowering total receivables; total receivables decrease (3) directly shrinks the base, reducing provision at same rate.

Why the others are wrong:

• B: Total receivables increase (4) raises provision, requiring credit entry, not debit.
• C: Trade receivables reduction (2) may not affect total receivables if non-trade balances rose.
• D: Trade receivables reduction (2) and total increase (4) contradict, as increase would expand provision.

Final answer: A