Concept:An increase in provision for doubtful debts is treated as an expense in the Profit and Loss Account.
Explanation:Provision for doubtful debts is created to cover expected losses from debtors who may not pay.
When the current year’s provision is higher than the previous year’s provision, the increase is an additional expense.
This increase is debited to the Profit and Loss Account, which reduces the net profit.
It does not affect gross profit, because gross profit is calculated before operating expenses like this provision.
The increased provision is also shown as a deduction from debtors in the Balance Sheet, but its main effect on profit is to lower net profit.
Answer:A. decrease in net profit