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  1. It’s due to the last statement that we Dr receivables and Cr irrecoverable doubtful debt expense with 2200. Otherwise if the last statement wasn’t part of the question we would have Dr Cash and Cr Irrecoverable doubtful debt expense account with 2200. This is what you meant right??

  2. Hi Mr Moffat
    your lectures have being of immerse help.

    Kindly help me with this,
    if Ann paid her doubful debt of $ 2000 won’t it mean last years irrecoverable and doubtful debt expense was overstated hence a credit entry of $ 2000 in the irrecoverable and doubtful debt expense account just like you did for Paul

    • Last year there will have been 2000 included in the allowance. This year it will not need to be included and so the allowance will fall by 2000 (subject obviously to any other changes that might be needed) and therefore the expense account will be credited with 2000 (subject again to any other changes needed in the allowance).

  3. Thanks so much Mr. John. But supposed the allowance required ended $14000 above that $12560 (the balance in the allowance for receivables account). Fine we’r gonna credit that account and debit bad debt accounts.. My questions is, do we credit with the difference ($14000-$12560) =$1440 just like you debited $3312 ?

  4. Hi,
    Great lectures even for people with little accounting background.

    Could you please clarify if the income statement in example 3 would show expense of 6488 or 3176 (i.e irrecoverable debt expense less decrease in allowance for receivables). It makes sense not to deduct the decrease in allowance (12560 – 9248) since this has already been accounted for in the irrecoverable debts expense T account. But I am confused as to how to present the income statement.

    My second doubt is shouldn’t ann’s 2000 be debitted in the allowance for receivables account?

    • Thank you for your comment.

      The expense in the income statement is 6488 (the cost of the two irrecoverable debts (12,000) less the irrecoverable debt recovered (2,200) less the decrease in the allowance (3312)). (Incidentally, there are printed answers to the examples at the end of the Lecture Notes).

      With regard to Ann’s debt, there is more than one way of dealing with the double entries (all obviously having to end up with the same final expense and the same final allowance). It is possible to debit the allowance account, but much better and safe and easier is simply to calculate the allowance required at the end of the year (which will obviously not include Ann) and then just put through the entry to change the allowance from the opening balance to the required closing balance.

  5. Hi, the note in the last example is bugging me. What if it said the cash from those 2 were not included? (i think we just need to recreate ar paul and credit it to adjust for cash while ann if we didn’t include cash the trial balance would not balance since we are missing that cr entry in ar ann. Seems to me like this note serve no other purpose than to simplify our adjustment (compared to if it wrote note: paul and anns payment were not accounted for in the payments. Is that right?

    • If the note had said that the cash had not been accounted for, then for Ann we would debit cash and credit receivables (because she had only been doubtful). For Paul we would debit cash and credit irrecoverable debts expense (because his debt had been removed and did not exist).

      Because the note did exist, then as far as Paul is concerned there has been a mistake which needs correcting (and is a common mistake in real life).

      • Don’t we need to reopen the account(because we might need to know this dude was once a bad debt) in this case by dr AR paul cr irre debt exp and then cancel it out by dr cash cr paul? Or is it that if the note said the cash had not been accounted for it is saying that the account had been reopened and credited appropriately only that the cash and subsequently the cr to irre debt exp had not been entered (then we simply enter it like in your reply).

    • Question 2 says that irrecoverable debts were written off during the year, so it means that the balance on receivables at the end of the year is already after removing the irrecoverables.

      (Question 1 said different – it said that it was decided to remove them after taking the balance at the end of the year)

  8. In question 1 of test it says previous balance of the year 2007 was 93600. In 2008 receivables totalled 1240800, does the receivables given in 2008 already includes previous balance in it or we have to add in it 93600 balance of previous year

    • If we increase the allowance (which means crediting it) then we are reducing the asset by a greater amount, which is costing the business and is therefore also an expense in the SOPL.
      If we reduce the allowance (which means debiting it) we are effectively increasing the asset and means that the business is saving. Therefore we credit the expense account and it reduced the overall cost to the business.

      (Have you watched all the earlier lectures (I asked you before but you have not replied)? It is important to watch all of the lectures in order (together obviously with the Lecture Notes in front of you).

      • Well i understood what are you saying but i have one more question that if we have 9248 in allownces than there must be a debit entry in expense showing 9248 cost of reducing asset. But you have something different , yeah you have balance in allowance account of 9248 but no entry of 9248 in debit side of expense account.

      • I am saying so because you clearly do not understand that reducing the value of an asset is an expense and therefore reduces the profit.

        With regard to your second post I can only suggest that you watch the lecture again.

      • Reviewing didn’t helped. After finding total allowances in allowance statement i.e. 9248. One entry should be on credit of allowance account and other on debit of expense showing total reduction in receivables from alowance. 12560 shouldn’t be there in allowance account as its related to previous year reduction which is also not present expense account due to closing off.

      • I always reply to questions but I do not sit 24 hours in front of the computer! I do have to sleep!! Be patient 馃檪

        The entry is to change the existing allowance of 12560 to the new allowance of 9248. Since we need to reduce it by the difference of 3312, we debit the allowance and credit the expense account.

        (If you prefer you can remove the existing allowance: Dr allowance and Cr expense with 12560; and then create the new allowance Cr allowance Dr expense with 9248. The end result will be exactly the same, but it takes longer 馃檪 )

  10. Dear John,
    What if the allowance for receivables is higher than last year, will the balance credit to allowance for receivables a/c, and debit to Irr a/c? What does it mean?
    Many thanks

  11. Hi sir, I saw a practice question in the FTC PDF, question 33 @page 439, just the same as the example you did in the class , but the working answer has a little bit different from yours. It doesn’t plus the debt recovered from previous IRR in the receviables a/c, I was so confused about it.

    • I am sorry, but I don’t have the ‘FTC PDF, question 33 @ page 439’ and so I cannot comment on what they have done.

      There are more than one way of doing the double entries, but that does not matter for the exam (it is not a double entry exam) and what I do in the lecture gives the correct answer (and is the easiest way of dealing with irrecoverable and doubtful debts!).

      If you watch our lectures (together with our lecture notes) then you do not need anything else except for a Revision Kit from one of the ACCA approved publishers (because they contain lots of exam standard questions to practice on, and practice is vital).

      Our lectures are a complete course for Paper F3 and cover everything you need to be able to pass the exam well.

      • but you konw, if the irr recovered did not show up in the rece’ a/c, the general allowance will change, and the change require in AFR will be diffterent, then the figures go to INC. and B.S. will change, is that allowable?

  12. Dear John
    Chapter 8 – Test question 3 –
    (2) debts of $500+$1500 which are to be specially allowed for
    (4) cash received from John of $2900 which has previously allowed for
    I don’t think we need to use these two info above when answering this question, please advise,
    Many thanks John

  13. Hi sir

    I would like to ask how come for test chapter 1, the answer is B: $52,800.00 but not C: $57,600.00

    I check the workings however i still could not understand.

    Kindly please explain. Thank you. Appreciated much.

    • The expense in the SOPL is the cost of the irrecoverable debt (88,800) less the reduction in the allowance.

      The allowance at the end of the year is 5% x (1240800 – 88800) = 57,600.
      Therefore the decrease in the allowance is 93,600 – 57,600 = 36,000.

      Therefore the expense in the SOPL = 88,800 – 36,000 = 52,800.

      (57,600 is the allowance at the end of the year, but this appears in the Statement of financial position. The question want so know what appears in the Statement of profit or loss)

  14. Hello sir,

    For example 3, I’ve done this extract from Income Statement:

    Expense:
    Irrecoverable debt: $12000
    Less: Irecoverable debt
    recovery ($2200)
    Less: Decrease in
    allowance for receivable ($3312)
    Total $6488

    Is it correct?

    Thank you

    • The figure is correct (it is the same figure that I get in the lecture and in the answer at the back of the Lecture Notes).

      However, in the Statement of profit or loss will just appear the one figure: Irrecoverable and doubtful debts expense 6488.

      We do not show the workings in the Statement of profit or loss (Income Statement).

  15. Nice to meet you, sir.
    I’m a new member in this web, just have a question I want to ask you, hope you reply me soon ^^ That is, when I watched your video and compared with the knowledge I get from university, it’s a little different, by the way you treated amount of Paul- $2200 of his prevously irrecoverable debt, you’ve already wrote off his AR account, so how can you treated it as
    DR: AR of Paul
    CR: Doubtful Exp
    Why dont you treat it as:
    DR: Cash
    CR: Other income
    And $2200 will be removed from total amount received $238000
    And in additional, when using Accounting system, when you DR – AR of Paul, the system will understand that amount as prepaid AR from Paul, and what happen if you wont sell to Paul anymore, how we treat pending amount $2200?

    • It seems that what you were taught at university was wrong.

      The 2,200 received from Paul is not “Other income”. It is a reduction in the irrecoverable expense for this year. (If we had known he was going to pay, then we would not have treated the whole amount as an irrecoverable debts expense in previous years, but it is too late to change last year).

      The amount received is not prepaid receivables – it does not matter whether or not we sell more to Paul. It is an irrecoverable debt recovered. When we removed the debt it was an expense. When we receive the ‘unexpected’ money it is effectively a negative expense (it reduces the total irrecoverable and doubtful debts expense).

  16. Hi sir
    Dear Sir would you tell me the accounting entry when the doubtful debt of last year become irrecoverable in this year
    Thank you sir

    • Dr Irrecoverable debts expense; Cr Receivables (just as I do in the lecture!!)

      (You can debit the allowance instead and the final result will be exactly the same (because the expense of changing the allowance will be greater) but it all gets a lot more messy 馃檪 )

      • Dear sir
        If we debit the allowance by 8000 then we should debit the expense account by 4688 and credit allowance account by the same amount (4688)
        The balancing figure of expense acc will be 6488 and and there is no change and same as u did.
        Am i right up to this stage?
        If yes
        Then the balancing figure of allowance account will not be 9248
        In the credit side of allowance there will be 6000, 3248, and 4688 and in its debit side there will be just 8000
        And the balance figure of allowance will differ as it will be 5936
        Will that be an issue?
        Please clear my concept dear sir
        Thanks in advance dear sir

      • I really don’t know why you want to debit the allowance – it makes life much more messy.

        However if you do, the allowance will then only be 4,560.

        The allowance at the end of the year still has to be 9,248. So the allowance will now need increasing by the difference of 9,248 – 4,560 = 4,688. So Cr allowance and Dr the expense account with 4,688.

        The expense account will now have a debit of 4,000 (the other irrecoverable), a debit of 4,688 (as above) and a credit of 2,200. The net expense will therefore be 6,488 exactly as before.

        (You will not be doing debits and credits on this in the exam – to do t-accounts will simply waste time – which is why it is so much easier to do it the way in the lecture. The total expense is: all the irrecoverables; plus the increase in the allowance (or less the decrease in the allowance); less any irrecoverable debt recovered. That always works and is so much faster than messing with t-accounts.)

  17. Dear John,

    Thanks very much for your lecture. It is great. I have a question of Example 3 and hope you could help me out. Thanks.

    For “George had still not paid the $8,000 owing, and must now be regarded as irrecoverable”, you debit expense with $8,000. But it has been debited as an expense last year when allowance was made. Is debiting it again a duplication of the expense?

    I think it would be more resonable if debiting allowance instead of expense in this case, since the money has been collected already.

    Please kindly tell me what is wrong with my logic. Thanks again:)

    • You can debit the allowance if you want, but it just makes life more complicated.

      If you do debit the allowance, then fine – the expense will be lower by $8000.

      However, when you calculate the new allowance, since the old allowance will be $8,000 lower, it means that the expense of increasing it to the new figure will be $8,000 more.

      So the end result will be exactly the same 馃檪

      • Thanks, I get what you said, but another question comes out.

        Last year the $8000 has been treated as an expense, and this year again. Is it reasonable to expense the same in two different years?

      • No – it is not treated as an expense this year.

        OK, if you write off the debt to the irrecoverable debts account, then initially there is an extra 8,000 expense this year. However, as I wrote before, it means the increase in the allowance (which is an expense) is 8,000 less than it otherwise would have been. So the net effect is that there is no expense for it this year.

      • Sorry I don’t get your response for the second question. Here is a simple senario I made up (which hopefully would clarify everything):

        At the end of year 1, A plc has a balance of 10 dollars, all from B plc, under the AR allowance A/C. Let’s assume the balance is 0 in the begining of Year 1.

        At the end of year 2, A plc has a balance of 50 dollars under the AR allowance A/C, and the 10 dollars from B has been deemed bad,;

        My entries are:

        Yr1: Dr Expense 10
        Cr Allowance 10
        (The 10 dollar due from B is expensed here)

        Yr2: Dr Expense 40
        Cr Allowance 40
        Give the 10 dollar due from B has turned bad, the entry is:
        Dr Expense 10
        Cr Allowance 10
        (Here it is expensed again)

        So why do you say it is expensed only in last year. Thanks in advance.

      • I have already told you that you can do it either way, and the end result will be the same. You obviously do not believe me!!

        Doing it your way, in the second year you start with an allowance of 10, you write of the debt: Dr allowance Cr Receivables 10. So the allowance is now zero. You then create an allowance at the end of the year: Dr Expense Cr Allowance with 50. So the expense in the second year is 50.

        Doing it the more sensible way: In the second year you start with an allowance of 10. You write of the debt: Dr Expense Cr Receivables 10. The allowance is still 10. At the end of the year you increase the allowance to the 50 required: Dr Expense 40 Cr Allowance 40.
        The total expense is 10 + 40 = 50. Exactly the same.

        For this tiny example I suppose both ways are as quick. However in general the second way is much more efficient (especially since F3 is not a debit/credit exam – there is very little asked about debit and credits and you certainly won’t have time to prepare t-accounts when you are doing the multiple choice questions).

      • Actually what I am asking is NOT the balance of allowance at the end of second year. You explained it perfectly in your first reply.

        What I am struggling with is that you said “So the expense in the second year is 50”. In my opinion, the expense for the second year should be 40 rather than 50. Because 10 has been debited as expense in the first year. Then why on earth expense it again in the second year?

        Many thanks.

      • Please read what I wrote again! I was NOT explaining the allowance at the end of the second year. Read again properly the last line of each of the second two paragraphs.

        The total expense in the second year is 50 – whichever way you choose to do it.

        However, this is a rather futile discussion. If you are not prepared to believe me and if you prefer to waste time in the exam preparing t-accounts, then no problem.

  19. Dear John,

    Thank you a lot for your lecture. I am not sure if you may explain me one thing….but anyway I will ask… The matter of fact is that I tried to test myself and I do not really understand the Question 3 since I don’t agree that we shoul add to receivables what Ken payed.

    Thank you a lot in advance

    • The cash received from Ken has been entered on the receivables account (they will have Dr cash Cr Receivables).
      However it should not have been entered on receivables because Ken had already been written off (it should have been credited to irrecoverable debts expense account).
      So we need to correct receivables by cancelling the wrong entry. So we Dr receivables, which increases receivables.

    • The amount that Ann paid has been credited to the receivables account (the question says that it is included in the total cash receipts) and that was correct.

      The amount that Paul paid was also included in the total cash receipts (according to the question) but it should not have been credited to receivables (because he had been written off as irrecoverable) and so the entry needs removing.

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