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  1. Avatar 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?

  2. 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?

    • Avatar 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.

  3. 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

  4. Avatar 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,

    Rob

    • Avatar 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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