1. avatar says

    Dear Sir,

    I have a question about Question 3 at the end of the Chapter 8.

    Could you please explain why we don’t take into account (4) cash received from John of $2,900 which had previously been allowed for, when calculating revised receivables figure?

    And could you please confirm whether my understanding is correct concerning why we don’t take into the account (2) debts of $500 + $1,500 which are to be specially allowed for – it is because receivables figure should include specific allowance.

    Thank you!

    • Profile photo of John Moffat says

      When the questions says that the balance includes the four items, it means that the 2,900 has been entered on the account, which is correct.

      We don’t adjust for the debts in (2) because they are only doubtful – so we leave the amount in receivables, but create the allowance for receivables for them.

  2. avatar says

    Hello John,
    Could you please help me understand the difference between Q1 and Q2 ?
    Q1 – AR is decrease by debt write offs:
    whereas in
    Q2 – AR is not decreased by irrecoverable debt write offs:
    (173,760*2%) and not ((173,760-2040)*2%)
    Just trying to find a logic…

    • Profile photo of John Moffat says

      I assume you are referring to the test questions at the end of the chapter.

      The difference between them is in the wording of the question.

      In question 1, the question says “it was THEN decided to write of debts….: which means that they had not already done so.

      However, in question 2, the question says “During the year…….irrecoverable debts were written off). This means that they have already been removed as irrecoverable.

      I hope that explains the difference, but if you are still unclear then please do post again.

  3. avatar says

    Hi John,

    I’m a little confused over questions 2 and 3 on the end of chapter test.
    Here is how I did question 2:
    =98.4 = A (is this the correct method and answer?)

    And question 3:
    1. 50000 – 2500 (irrecoverable debt) = 47500
    2. 47500 – 1800 (previous irrecoverable debt that has now been paid, so it is like negative expense or added income) = 45700 (final answer)

    I don’t know what I’m doing wrong here.

  4. avatar says

    Great lecture Mr. Moffat!

    But now I am bit confused with the difference between Allowance and Impairment (in this case impairment for receivables).

    Thanks in advance!

  5. Profile photo of michellesp says

    Prof Moffat,

    My question relates to chapter 8, question 1 of the multiple choice questions in the course notes. Can you please explain to me why it is necessary to add back the 88,800. I worked it out and thought I was correct with answer C but when I checked the answer booklet you have to add back the 88,800 to arrive at answer B.

    • Profile photo of John Moffat says

      We don’t add back the 88,800.

      The expense in the income statement is the cost of writing of irrecoverable debts, together with the cost of changing the allowance for doubtful debts.

      The irrecoverable debts are 88,800. The allowance is reduced by 36,000 – because it is reduced, it is a negative expense.
      So….the overall expense is 88,800 – 36,000.

    • Profile photo of John Moffat says

      There was no need to do anything.

      The question says that he has paid 1200 and that they don’t expect to receive any more. So it stays written off as irrecoverable.

      (The whole debt was written off in the previous year – this year we just bring in the amount he has paid as ‘unexpected income’, treated as a negative expense.)

  6. avatar says

    sir this question is from bpp text book

    A 1 jan 2004 ,Tartar co had receivables of $380000.A specific allowance of $20000 had been made for a business customer ,Drab.The general allowance for receivables was 2.5%.During the year ,Drab went out of the business owing Tartar co $28000,none of which is expected to be recovered.At 31 dec 2004 ,Tartar had total receivables of $420000.There were no specific allowances but the general allowance for receivables was increased to 3%

    what is the charge in the statement of profit or loss for the year to 31 dec for the allowance for receivables and irrecoverable debts?

    THE ANSWER IS $11600.

    can you please explain this whole question with double entry and what do you do when the receivables for the year has increased ?

    • Profile photo of John Moffat says

      At the beginning of the year there was a specific allowance of 20,000 and a general allowance of 2.5% of (380,000 – 20,000) = 9,000.
      So the total allowance was 29,000.

      At the end of the year, the allowance is to be 3% of 420,000 = 12,600.

      So we need to reduce the allowance by 16,400 (29000 – 12,600).

      So the total charge in the statement of profit or loss will be 28,000 (irrecoverable debts) – 16,400 (the reduction in the allowance) = 11,600

      (If you want double entries, then watch my lecture on irrecoverable debts. However doing t’accounts for this question would simply be wasting time. The exam is not really a debit and credit exam – computers do the double entries in practice – the exam tests your accountancy knowledge and the accountants job is to calculate the figures.)

      • avatar says

        Hi prof johnmoffat,
        i though on the bok pg 208 said, we have to remove the total amount of the specific provision from the general provision, and then calculate the general provision based on the figure, but why here we directly deduct the amt of specific allowance rather the provision (i knew the amt is not given in the question, but is this the reason? i’m a bit confused) thank you if you could help me!

      • avatar says

        oops, sorry, on pg 208 of the BPP text book, there’s a sample question,
        XY Co has a balance of recivables of 250000. it wishes to provide a specific allowance of 60% on a debt of 20000. it also wishes to set up a general allowance of 2% or receivables. what is the charge to the income statement?

        in the answer the general allowance is calculated by 2%*230000 (which is total receivables-specific provision 250000-20000, not 250000-12000)

        Thank you!

      • Profile photo of John Moffat says

        The reason is that since there is a specific allowance of 60% of the debt, it must be that we think that the rest of the debt is no problem. So we only calculate the general allowance on the other debts.

      • avatar says

        what if i change the question like this? which rule i should follow then?since i knew both debt amt and allowance

        ?At 1 jan 2004 ,Tartar co had receivables of $380000.A specific allowance of $20000 had been made for a business customer ,Drab on a debt of 28000.The general allowance for receivables was 2.5%.During the year ,Drab went out of the business,none of its debt is expected to be recovered.?At 31 dec 2004 ,Tartar had total receivables of $420000.There were no specific allowances but the general allowance for receivables was increased to 3%

        what is the charge in the statement of profit or loss for the year to 31 dec for the allowance for receivables and irrecoverable debts?

        Thank you so much for such an early morning lifesaving!!!

      • Profile photo of John Moffat says

        At the start of the year, the allowance was:
        Specific – 20,000
        General – 2.5% x (380,000 – 28,000) = 8,800
        So total allowance was 28,800

        At the end of the year, receivables are 420,000 but we then write off the whole of Drab’s debt of 28,000 which leaves receivables as 392,000. (I am assuming that it was not written off during the year – if it had been then the receivables at the end of the year would be still 420,000. In the exam this will be made clear.)

        So…at the end of the year, the allowance required is simply the general allowance of 3% x 392,000 = 11,760

        The expense in the statement of profit or loss is therefore:

        Irrecoverable debt: 28,000
        Less: decrease in allowance (28,800 – 11,760) 17,040

        So final expense: 10,960

  7. avatar says

    Hello please explain that if i want credit my allowance for receivables for 9248 instead of credit 112560 and then debit 3312. The next step is debit an irrecoverable debt for 9248 as I have already increased the allowance account but then I have a different answer. You just only credit an irrecoverable debt for 3312. Regarding what you have done, if I want to debit 9248 then I have to credit 12560 so i’ll have the same answer with you but i don’t understand why?

    • Profile photo of John Moffat says

      There is more than one way of dealing with irrecoverable debts and allowances (all ending up with the same final result) but the way I show in the lecture is by far the best and the easiest.

      The point is that we need to end up with an allowance of 9248, but there is already an allowance of 11560 still sitting on the allowance account since last year.
      So… change it to the balance that we need, we simply debit or credit the allowance account to get what we want. In this example we need to debit with 3312 so that we then end up with a credit balance of 9248 as required.

      You can certainly debit the allowance account with 11560 to remove the existing balance (and credit the irrecoverable debts account) and then credit the allowance account with 9248 to create the required balance (and debit the irrecoverable debts expense account). This would end up with the same answer, but it is quicker and easier just to adjust for the difference.

  8. avatar says

    Please can you help explain how the net balance of 706,000 was derived as part of the answers to test question 4?

    i know tho get the receivables, the bad debt of 72,000 is deducted from the trade receivables of 838,000 ie 838000-72000=766,000. and the allowance for receivables is 60, 000. please correct me if im wrong.


  9. avatar says

    Hi John. What exactly does this mean/imply (from Q1) “…adjust the allowance for receivables to the equivalent of 5 per cent of the trade receivables based on past events”…

    I don’t quite follow the logic behind this statement. Any clarification would be must appreciated.


    • Profile photo of John Moffat says

      It means that on average in the past, 5% of receivables ended up not paying. So they have decided to create an allowance of 5% this year to be safe – probably 5% of the receivables will not pay again (but they don’t know which people it will be).

      The % they decide on is just a matter of judgement – a combination of the type of business (some businesses have more people not paying than others) and also the economic climate (in times when the economy is bad, more people are likely not to pay). In the exam you will always be told the percentage.

      I assume that you have watched the lecture (because I do try and explain this during the lecture)?

      • avatar says

        Thank you for the explanation. I do understand the maths behind the answer, and i would have known how to solve the problem (were it worded differently). I just couldn’t quite understand what the statement implied, but now i do. Thank you.

        And yes i do watch the lectures religiously…though sometimes it’s the case that watching and comprehending are two different things…still trying to wrap my head around the whole Dr and Cr business…been told it becomes second nature the more you practice (fingers crossed).

  10. avatar says


    The Income Statement Approach To Estimating Uncollectible Accounts Expense Is Used By Burgess Wholesales. On March 31 The Firm Had Accounts Receivable In The Amount Of 630,000$. The Allowance For Doubtful Accounts Had A Credit Balance Of 3,950$. The Controller Estimated That Uncollectible Account Expense Would Amount To One Half Of 1% Of The Net Sales Made During March. This Estimate Was Entered In The Accounts Byan Adjusting Entry On March 31.
    On April 12,An Account Receivable From Conrad Stern Of 3,110$ Was Determined To Be Worthless And Was Written Off. However, On April24 Stern Won Several Thousand Dollars On a T.V Game Show And Immediately Paid The 3,110$ Past Due Accounts

  11. avatar says

    Could u explain Question3 for me?
    In the lecture Paul’s 2200 payment is debt as IRRECOVERABLE EXPENSE, while in Q3, Ken’s 1800, which is also been written off before, is simply “Add irrecoverable debt recovered 1800″ by the answers. why Ken’s 1800 don’t need to be debt as IRRECOVERABLE EXPENSE ?

    Best Regards

    • Profile photo of John Moffat says

      In example 2 in the lecture, Paul was an irrecoverable debt – we credited receivables and debited irrecoverable debts expense.

      In example 3 in the lecture, and in test question 3, both Paul and Ken are irrecoverable debts recovered – they had been written off earlier but this year we received the cash.

      The correct entry would be to debit cash and credit irrecoverable debts expense (treating as a negative expense). However in both cases the bookkeeper has debited cash and (wrongly) credited receivables.
      So in both cases we need to debit receivables (because it should not have been credited there) and credit irrecoverable debts.

    • Profile photo of John Moffat says

      The explanation is actually in the comment below.

      There is an irrecoverable debt of 2040.
      Also, the allowance for receivables is reduced by 1900.80, and this reduction is effectively a negative expense.

      So the net expense is 2040 – 1900.80

  12. avatar says

    Hi there, I’m a little confused in question 2; why has the £1,900.80 been deducted from the £2,040 and not added? I thought both the irrecoverable and change in allowance was added together for the income statement as expenses? Thanks

  13. Profile photo of Futurediva says

    Chapter 8, Test, Question 3:
    Why should the $1800 irrecoverable debt recovered amount affect the receivables’ account balance (according to the answer)? Isn’t it supposed to be treated as a negative expense instead? Please explain.
    Thanks :)

    • Profile photo of John Moffat says

      It is because the first line of the question says that the balance on receivables includes the following….

      So this means that the 1800 received has been entered in the receivables account, but it should not have been so it has to be adjusted for.
      It will be treated as a negative expense, and should have been credited to the expense account but instead it has been credited to receivables – so it needs correcting.

      • Profile photo of Futurediva says

        Oh oh oh! Silly of me to have missed that bit when it’s included in the tutorial. I should read the question better.
        Thank you so much, Sir! :)

  14. Profile photo of patriote2130 says

    Kindly suggest me the solution for the following question which I found in BPP F3 Finanacial Accounting book. Actally I solved this question and my answer is 10,750 dollar but as per answer provided in the book is 11000 dollar. kindly explain to me in this regard.

    Irrecoverable debts are $5,000. Trade receivables at the year end are $120,000. If an allowance for
    receivables of 5% is required, what is the entry for irrecoverable debts and allowance for receivables in
    the income statement?
    A $5,000
    B $11,000
    c $6,000
    D $10,750

    • Profile photo of John Moffat says

      It depends on the exact wording of the question as to when the irrecoverable debts were written off.

      If they were written off during the year, then the 120,000 is the balance at the end of the year which means the allowance will be 5% of 120,000 (and then the expense is this plus the 5,000 irrecoverable).

    • avatar says

      they are 2 different general journal.

      Allowance for receivable as explained on example 1 and 2 are for specific allowance (doubtful debts) and general allowance ( provision).
      Doubtful debts is for debt which is recoverable but eg. cause it it is overdue for too long therefore the company decided to classify it as doubtful debt.
      So when you do double entry there must be 2 accounts. e.g. if there is doubtful debt it will be dr doubtful/bad debt a/c and cr allowance for receivable. You cannot cr trade receivable because as mentioned earlier it is recoverable.

      You get it nimmyj?
      Correct me if I am wrong.

  15. Profile photo of Sangria9 says

    1. During 2006 you need to debit Bad debt expense a/c for $2,040 (write-off irrecoverable debt).

    2. On Allowance for receivables a/c you have opening credit balance $5,376.
    The company decided to make it $3,475,20 ($173,760 * 2%), so you have closing balance on Allowance for receivables a/c equals to $3,475,20. For this you need to debit this a/c and credit Bad debt expense a/c for $1900,80 (you charging movement on allowance during the year).

    3. The difference on Bad debt expense a/c will go to I&E a/c: $139,20.

    • avatar says

      @katerina. i think your answer is wrong. we always have to reduce bad debts by receivable to get exact closing receivable. after that we will get general allowance from closing receivable. In allowance for receivable account we will reduce this amount from the previous year allowance receivable. Then we will get allowance receivable decrease or increase. if allwance recivable is decrease, we gonna reduce this about with bad debts written off in income statement. if allowance receivable is increase. we gonna add it. simple . Therefore answer is 98.40

      • avatar says

        I completely agree with you, I don’t know why the total receivables ($173760) was multiplied by 2% first before subtracting the allowance for receivables. Shouldn’t it be 2040-(5376-(2% x (173760-2040))) = 98.40. Can someone explain why the irrecoverable debts were subtracted after computing the general allowance and not before?

  16. avatar says

    awesome lecture but ve some querries if any1 can help
    1)George was considered doubtful last year and we credited allowance for doubtful debts and debited irrecoverable debts a/c and finally transferred it to income statement as an expense and again this year it was regarded as irrecoverable and again transferred to income statement as an expense, so isnt this treated as an expense twice???
    2)Ann was also considered doubtful last year and the amount was credited in the allowance for doubtful debts a/c and debited in irrcoverable debts a/c and finally transferred to income statement as an expense now since we are receiving the money why dont we credit the income statement to cancel out the expense we debited in the income statement last year?

    • Profile photo of John Moffat says

      @hwaliji, There is more than one way that you can do the double entries for doubtful and irrecoverable debts, but they all end up with the same final result (i.e. the same charge in the income statement and the same balance on the allowance account).
      The way shown in the lecture is the easiest way.

      With regard to George. Yes – it was part of the expense last year because he was part of the allowance created. However this year, although he has been written off as an expense, he is no longer included in the final balance on the allowance account and so the expense of changing the allowance is lower by the same amount.

      With regard to Ann, here there is no alternative. You must debit cash (cos we have received cash) and you must credit receivables (because she had been left as owing the money in the receivables account). However, she is obviously no longer included in the balance on the allowance account at the end of the year, and so the expense of changing the allowance is lower by the same amount.

    • avatar says

      @martinras, first you need to find receivables balance after writing off irrecoverable debts that is 1240800-88800=1152000 and then calculate 5% of 1152000 which is equal to 57600, therefore this amount will be the closing balance for allowance for doubtful debts a/c and the difference between opening and closing balance is a decrease in allowance for doubtful debts by 36000 which equal to subtracting 57600 from 93600 and then 36000 will be tramsferred to irrecoverable debt expense a/c but remember we have also transferred bad dets 88800 to this a/c on debit side so the net amount to be taken income statement is 88800-36000=52800.
      Hope you understood it.

  17. avatar says

    Thanks first. 100% helpful. Firstly I read lecture then I tried to do exercise my self. I faced difficulty in example 2 & 3. Now I am totally clear after I listen video.

    Thanks again

  18. Profile photo of drrob1983 says

    at the risk of sounding like a complete fool, i have to ask this question. During the video, you explain Paul’s payment of 2200 would be CREDITED to the irrecoverable and doubtful debts expense account. I understand the logic behind this, but as I was doing some practice questions from BPP, a similar question expected me to put recovered amount into an ‘irrecoverable debt recovered’ account and therefore did not specifically affect the charge in the income statement for bad and doubtful debts. From the point of view of the ACCA, which would you think is the correct treatment?

    Kindest Regards,


    • Profile photo of John Moffat says

      You can credit an irrecoverable debt recovered account, but this would then appear on the income statement as a negative expense.
      Usually questions just want the net expense in the Income Statement which is why it is easier simply to credit the expense account.

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