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Dear Sirs,
I would like to know for using the indirect method, why “bad debt written off” do not need to included in the adjustment like depreciation as it is not cash?
Thanks!!
It’s already been netted off the receivables figure
So the movement from one year to the next already takes account of the irrecoverable debt write off
Additionally, where in any set of ‘proper / real’ financial statements are you going to find the figure for irrecoverable debts? (unless, by there size, they are classed as exceptional)
for the above question, can I write in the below format because I found it is easier for me to understand.
Cash flow from operating activities
adjustment: bad debt written off 17decrease in inventory (625-17-491)) 117
Instead of
decrease in inventory (625-491) 134
What makes you think that the irrecoverable debt write off is incorporated within the inventory movement?
In answer to your question, no, that would not be acceptable
Sorry, I was typing it wrong, it should be receivable instead of inventory…so even it is receivable, I cannot answer in this way too?
Cash flow from operating activities
adjustment: bad debt written off 17decrease in receivable (625-17-491)) 117
Instead of
decrease in receivable (625-491) 134
Is this the question where you are asked to prepare the operating activities section using both direct and indirect methods?
Koey – it will NOT BE APPLICABLE in the exam
If a cash flow question is asked in its own right, it will be indirect method – it has NEVER been direct method
And if it’s indirect method, you will not be given a figure for irrecoverable debts
And anyway, the answer is still NO
yes it is question to ask us to prepare the cash flow from operating activities using both direct and indirect method.
Could I conclude as below?
Direct method, bad debt written down will be considered to calculate cash receipt from customers
Indirect method, bad debt written down will not considered in both adjustment to the operating profit and increase/decrease in receivable as it is already included in the receivable figure.
Correct on both counts
For the direct method not only will the irrecoverable debt be taken into account when calculating cash received from customers but it will also feature in its own right as an add back in the calculation of operating activities
OK now?
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