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Sally had an allowance for receivables at 1 January X5 of $450. She believes this should be increased to $1,000 for the year ended 31 December X5. During the year, Sally decided to write off debts of $75, including $30 which was previously allowed for. What will be the charge for irrecoverable debts in the income statement as at 31 December X5?
My understanding is 550+45, because of the $30 which was previously allowed for.
Dr Irrecoverable Debts $550
CR Allowance for Receivables $550Dr Bad Debts 45
Dr Allowances for Receivables 30
CR AR 75
Answer states not to worry that it was previously provided for, as Sally won’t have included this debt in her closing calculation. Able to explain to me? Thank youThe expense in the SOPL is always the total of any irrecoverable debts written off plus the increase in the allowance (or less any decrease).
So the expense in the SOPL is 75 + (1,000 – 450) = 625.
(If you prefer, then charge 30 of the debts written off to the allowance, which means the allowance brought forward reduces to 420. The the expense in the SOPL is the remaining irrecoverable debt of 45 + (1,000 – 420) = 625. However why mess around doing it this way ? 🙂 )
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