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Do we debit or credit the allowance account when we bring the balance from the previous year forward? The question says ” The allowance for receivables at the previous year end was 5650$. The specific allowance this year was 3576$. We write off irrecoverable debts amounting to 8900. What is the charge to the SOPL?” I would have added the irrecoverable debt 8900 and the allowance during the year 3576. The answer is different. They subtract the last year balance from this year allowance and add the difference to the expense = 5650-3576+8900. I do not understand the subtracting part.
With regard to the allowance, what appears in the SOPL is the expense of increasing the allowance (or in this case the saving from reducing it).
This is all explained in my free lectures on doubtful and irrecoverable debts.
The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
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