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3. Based on past experience the allowance for receivables is to be increased to 5% of trade receivables. (for June 2017)
Trial Balance
Allowance for receivables at June 1 2016 CR-50,000
Trade Receivables DR-1,180,000
Receivables expense DR-195,000Workings:
Allowance for receivables $
Previous allowance 50,000
New allowance(1,180,000 x 5%) 59,000
Increase 9,000
Per trial balance – receivables expense 195,000
Income and expense-receivables expense 204,000Is it right?
According to me, remaining receivable should be used to find allowance. You have taken total receivables to find allowance.
Allowance for Receivables at June 2017 = 5% x (1180000-195000)…
However, sir will tell you more clearly.At year end (2017) trade receivables = 1,180,000
5% of this is 59,000, so the allowance must be increased by 9,000, from 50,000 to 59,000.The journal entry will be:
Dr Allowance for receivables (P&L expense) 9,000, increaseing the expense to 204,000 as you suggest.
Cr Allowance for receivables (BS., to be set against the receivables) 9,000, bring the allowance to 59,000.Sir why you did not subtracted Irrecoverable debt expense and then Allowance for receivable?
Not sure what you mean.
Expense is causes by a change in the allowance or by writing off debts.
If a debt is ‘doubtful’ only, it is not written off, but for valuation purposes the allowance is set against it to reduce the book value of the receivables.
I mean to say that we will have to calculate allowance for the remaining receivable which is Trade receivable less bad debts.
So Allowance would be 5% x (1180000-195000)?
Why are we not subtracting bad debts first?If debts have been written off and expensed as 195,000, the receivables balance will already have been reduced by 195,000.
Alright sir. Actually few questions, I did in which it was subtracting bad debts first then charging Allowance for Receivable.
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