FA Chapter 8 Questions Irrecoverable Debts and Allowances
128 Comments
S
Sergiu·
Hi,
For Q1:
-there appears to be a typo that can trip up people new to accounting like myself that don't know what debt write off is.
-when it says "write off debt totalling 88,800" does this imply that ALL debts were written off, totalling 88,800? Leaving 4,800 (from 93,600) as statistical approximation? If yes then that solves all my problems, if not then I'll comment another question afterwards.
Thanks
J
John MoffatTutor·
It means that debts of 88,800 were written off (removed) and the rest of the debts were left as OK. (The meaning of 'write-off' is explained in my free lectures on this). There is no statistical approximation of anything involved.
This is the actual wording of a past examination question and is fine.
S
Sergiu·
I'm confused why in the lectures you first remove irrecoverable and doubtful debts from receivables, before multiplying by the general allowance %, whereas in quiz question 1 you only remove the written off debt and leave the remaining old allowance for receivables.
Again, all problematic debts removed before x % to find general allowance.
Why isn't it in quiz q1 here also:
(1,240,800 - 93,600) x 5% to find general allowance
instead of (1,240,800 - 88,800) x 5%?
This leaves (93,600 - 88,800) 4800 problematic debt in the receivables when multiplying by 5%. Or is this not problematic debt?
Thank you for your time.
J
John MoffatTutor·
The general allowance is calculated on the receivables (after removing any irrecoverable debts) less any specific allowance.
In question 1 there is no mention of any specific allowance and therefore the general allowance is calculated on the receivables after writing off the irrecoverable debts.
S
Sergiu·
Can we infer that after writing off 88,800, the remaining 4800 is the general allowance that was calculated for 2007? (That's what I meant by statistical approximation earlier, I used the wrong words.) We can't calculate the general allowance for 2008 until we remove all doubtful debts from receivables, and the question doesn't say whether any of the remaining 4800 are doubtful debts. So the only way to calculate the general allowance for 2008 is to assume that 88,800 was all doubtful debt that is now deemed irrecoverable, and none of the remaining 4800 is actual debt, just general allowance for 2007. Thank you for your time.
J
John MoffatTutor·
No. In all cases we take the balance on receivables at the end of the year, after removing any irrecoverable debts. Then for the general allowance we take the relevant % of that balance (less any that we are told are specifically doubtful at the end of the year).
How the allowance at the start of the year was calculated is of no relevance because everything will have changed during the year. We are only interested in the calculation at the end of the year (and then adjust whatever the existing balance was sitting there since the start of the year to get the balance we have calculated as being needed at the end of the year).
K
Khumora·
Hello, John.
Can you tell me in the fourth question 3 rd part(cash received from Ken) why we must debit receivables? You said in the lecture, when we receive irrecoverable debt from previous year, we debit cash and credit irrecoverable debt expenditure account? What did I miss?
A
Araz·
Hi John,
in Q4 shouldn't we subtract 2900 as that debt was only allowed for and remained in receivables account. So when cash was received there should be entries that close off that 2900 in irr. expense and allowance account, but also cash - debit and receivables - credit?
I
Ioannis·
I agree only for the second entry Dr Cash - Cr Receivables. In the example 3 of the notes, for Ann (which is similar case) said " Anna is included in the total cash receipts for the year". This cash was credited to receivables. If Q4 had similar note, we shouldn't credit receivables because receivables would already be credited.
F
Francine·
Hi John,
Good day. For Q3, I would like to understand why don't I remove the irrecoverable debt from receivables (173,760 - 2,040)?
J
John MoffatTutor·
It is because the question says that the debt had been written off during the year. So the balance at the end of the year is already after having removed the debt..
F
Francine·
Ah I see, perfect. Thank you.
G
Giri·
hi,regarding 1st question 88800-38000 should be 50800 and not 52800
J
John MoffatTutor·
Thank you.
However the final answer is correct.
The decrease in the allowance should read as being 36,000 (not 38,000).
So the total expense is 88,800 - 36,000 = 52,800.
K
Kristiina·
Hi. Regarding Question nr 4, the point nr (4). In the answer explanation it is written "(4) It is correct from cash received from doubtful debts to be credited to receivables.", but in the calculation provided under the explanation, the cash received is not included. The calculation provided is "correct figure for receivables = 50000-2500+1800= 49300", but the 2900 cash received from John (a doubtful debt) is not subtracted from the receivables.
J
joseph·
sir can you please explain to me no.4
J
John MoffatTutor·
Did you click on 'review quiz' after submitting your answers, because at the bottom then shows the workings for each answer .
K
Katie·
Hi Sir, I don't understand why we dont add 88,800 (specific) and 57,600 (general) and then find the difference for the increase/ decrease in allowance in Q1
J
John MoffatTutor·
The 88,800 is not a specific allowance. It is the irrecoverable debts that are written off.
H
Heidi Rebekah·
Question 1
The calculations are incorrect
Decrease in allowance 93,600 - 57,600 = 36,000 not 38,000
88,800 - 36,000 (not 38,000) = 52,800
Unless I am going mad!!!
J
John MoffatTutor·
You are correct and I will have the workings changed. (However, as you have written, the final answer of 52,800 is correct :-) )
F
fahim231·
Q3 makes no sense.
Why are the irrecoverable debts not deducted from the receivables when deriving the new allowance?
If they were already written off during the year according to the answers, then how can the decrease in allowance be deducted from it to reduce the total expense?
J
John MoffatTutor·
The question makes perfect sense (and is a past real exam question!).
It specifically says that the debt was written off during the year, and so the net expense for the year is the irrecoverable debt less the decrease in the allowance for receivables (as explained in the free lectures).
G
gufran·
Sir if I solve all questions of kaplan exam kit then I will pass the exam
J
John MoffatTutor·
If you get the answers right and if you attempt them under time pressure (especially the mock exams) then you certainly should be able to pass the exam.
R
Roman·
Alhamdullilah!!!
100% scored
E
Esther·
In question 4 why did they not subtract the 2900 yet even in the answer notes they say that the amount should be credited in the receivables account making the answer(50000+1800-2500-2900)
J
John MoffatTutor·
According to the question, the cash received has been entered in the receivables account. This was correct (as stated in the answer) which is why it does not need to be entered again.
E
Esther·
and what if they had told us there was an irrecoverable debt of 1000...would we make any revision to the receivables amount??
R
Roman·
Dear!
Remember we can't allowance value in receivable account then 2900 doesn't belong to receivable acc
S
Səddam·
This question has already been asked and answered. Sorry
Z
Zafar·
Asssalam u Alaikum
Why we add Kenn in Receivables???
But when Irrecoverable debt is recovered....
The Accounting entry is:
Dr Cash
Cr Irrecoverable debts Expense
(Kaplan Publishing)
Plz Kindly Clarify...
Thanx
J
John MoffatTutor·
Because the question says that the cash received has been entered in the receivables account. It should not have been entered there and so if it is removed then receivables will be higher.
T
Trevor·
Help l'm not getting it, we are saying in our receivables of $50 000, $1 800 from Ken is included which must not be in the receivables right. so to remove it we must add it again?
A
Ahsan·
I dont understand question no 3
For new allouncea why we dont minus the irr from receviable?
J
John MoffatTutor·
Because the question says that they were written off during the year. So the receivables balance has already had them removed.
Z
Zafar·
Sir Question #02
Why we add net allowance and a decrease in allowance in total expense[total expense=4000+2050]
why we did not subtract them[total expense =4000-2050]
plx tell me
J
John MoffatTutor·
There is an increase in the allowance, not a decrease!!
N
Naiya·
Wow
A
Asif·
However I do like to point out, there’s some correction to be added.
Q1 - ‘o’ has been written instead of ‘off’.
And in one of the working for the answers, your wrote =38,000 instead of 36,000. (Although the final answer was correct)
A
Asif·
Grateful for the useful Exercises, Sir. We grow from mistakes. Lectures + Exercises = Revised.
J
John MoffatTutor·
But make sure that you also have a Revision Kit from one of the ACCA Approved Publishers, as I keep stressing :-)
B
benjamincarsonrhule·
100% at first attempt.
Thanks to OpenTuition ?
L
Lokesh·
first adjustment in question no.4 is vague, i took it as 2500 received from mike after he gone to liquidation !
J
John MoffatTutor·
No, it is not vague. It does not say 'cash received' as do two of the others.
A
abdikani·
ok, what does 2500 from mike mean? I took it as money from mike too.
J
John MoffatTutor·
The question says that the 50,000 receivables figure includes 2,500 from Mike. That means he is still showing as owing the money. It does not say that the money was received (and it obviously won't be since he has gone into liquidation, so it needs writing off as irrecoverable.)
K
Kok Hue·
2 point , CHEER
M
Marta·
Hello, in question 2 - why are we calculating the new allowance only of the receivables of $185K and ignoring the previous year? Is it a tricky question and because it is only mentioned that the company had receivables of $140K and not calling it a balance we ignore it?
J
John MoffatTutor·
The allowance required at the end of the year is always calculated on the receivables at the end of the year.
When the question says that the receivables on 31 December are $140,000 it does not need to use the word 'balance' because it can only be the balance!
Did you watch the free lectures on this before attempting the test?
A
Ata·
Sir I also don't get it why don't we use 140,000 + 185,000 to find new allowance because our last example 3 we used previous year's receivables.
J
John MoffatTutor·
The allowance is always calculated on the balance on the receivables at the end go the year which was 185,000 (and not 140,000 + 185,000). The expense in the SOPL is the change in the allowance over the year.
Did you watch the free lectures before attempting the test?
R
rahmatbakhshi·
Hello sir,
I think there is no any other indication for Ken except this small point at starting the question ( This including...) otherwise we are not supposed to Credit the receivable for receiving the cash which had been previously written off. In stead we will record this amount (e.g: 1800) as sundry income.
Thanks in advance
T
tosinpaul91·
Hello sir ,
Question 4 is still confusing in Ken part - 1800. I understand that 1800 was is to be debited from the recivabkes and credit irrecoverable exp. so if it’s debited it means that it will be
1. 50,000- 2500= 47500
2. Then 47500- 1800( debiting the receivables ) = 45700
3. 45700 + 1800 = 47500 then crediting the receivables again.
Are we suppose to leave the 1800 and not debit it and add to it again
For the answer to be 49300 it means the receivables was not debited with the 1800.
Please kindly clarify .
Thanks a bunch
J
John MoffatTutor·
The cash received should not have been entered to the receivables account because the debt had previously been written off. However, the question says that it has been entered (and because it was cash received it will have been credited). Since it should not have been entered the credit entry needs to be cancelled and so we will debit receivables to cancel it.
S
saman·
great answer .thanks.
J
John MoffatTutor·
You are welcome :-)
N
Nyaradzo·
thank you so much sir well explained
K
kemkemkem·
I really do not understand sir. When the question said “adjust the allowance for receivables to the equivalent of 5%”, does it mean that 93 600 must be reduced to 57 600? If that is the case, then shouldn’t the 57 600 (seeing as it is now the balance on the allowance for receivables account) be debited to the irrecoverable and doubtful expense account (88 800 + 57 600=146 400) and then credit the irrecoverable and doubtful debt expense account by (93 600 – 57 600=36000)? That would then leave a balance on the irrecoverable and doubtful debts expense account of (146 400 – 36 000=110 400)? I am trying to do it in the T-accounts way because I understand better that way.
J
John MoffatTutor·
There is already a credit balance on the allowance account of 93,600 from last year. We need to reduce this to 57,600 and we therefore debit the allowance account with the difference of 36,000 and credit the irrecoverable debts expense account.
For the irrecoverable debt, we debit the irrecoverable debts expense account with 88,800.
This leave a balance on the irrecoverable debts expense account of 52,600 to be transferred to the SOPL.
Did you watch the free lectures on this before attempting the test?
K
kemkemkem·
Yes I did watch the lectures. I re-watched example 3 and there it was! Thank you!
J
John MoffatTutor·
You are welcome :-)
J
John MoffatTutor·
traceyjaybee: Very true :-)
T
tracyjaybee·
Question 3 was mean! It really highlighted that I need to RTQ!!!
A
andreis·
Darn, true! I will need to read questions more carefully next time as I ended up with 98.4..
M
Missy·
(If there was an allowance then the debt was doubtful, but it would still be left owing on receivables until it is paid.) sir this is for JOHN? coz john is doubtful but as there is no allowance made so we will leave it coz he still owes us money? is it the right concept i am making?
J
John MoffatTutor·
I assume that you are referring to question 4.
John's debt was doubtful and so the debt remained on receivables but an allowance was made. He has paid and so they will have credited receivables (and the allowance is no longer needed).
Had you watched the free lectures before attempting the test?
M
Missy·
Yes i have watched your videos just yesterday..so sir question 4 2 part that's doubtful debt we arent taking that in the calculation too?
J
John MoffatTutor·
These debts are doubtful and therefore although an allowance would be created, they are still left as owing in receivables.
M
Missy·
Sir in question 3 ? if the debts are written off we don't take it in the calculation of new allowance? whereas if the debts are not written off we take them in the calculation of taking out the new allowance?
J
John MoffatTutor·
We only create an allowance if the debts are doubtful (not if they have been written off as irrecoverable).
N
nalweyiso·
Hello
What is confusing me here is the cash figures in 3 and 4. I actually thought that the 1800 should be ignored in this particular case because when a debt is written off as a bad debt and is paid later, the accounts that should be affected are cash and irrecoverable debts account not the receivables account so personally I would actually add the 2900 instead of 1800. Thanka
J
John MoffatTutor·
The 1800 should not have appeared in the receivables account as you have written. However it was entered in the account in error and this needs correcting.
As far as the 2900 is concerned. this debt had only been allowed for, and so it was correct for them to have entered it in the receivables account.
K
khalil·
If he received cash from customer Dr. will be cash not receivable ACCOUNT BY 1800 , QUESTION 4
M
MikeLittleTutor·
Correct - but where should the credit entry go? The entry so far affected has been to credit receivables and that is incorrect - it should be credited to the Allowance for Receivables Account
So, to correct (as the printed solution clearly states) we need to Dr Receivables to correct the previous incorrect credit
T
tosinpaul91·
Please sir when we debit receivables to correct the mistake , I thought you said we should credit the irrecoverable debt expense account . So how come are we crediting receivables again. That’s where I don’t understand
V
vuthydara·
Please Help me Question Number 1
V
vuthydara·
What's related between Allowance for receivable in 2007 and Allowance for receivable in 2008. Why we need to find decrease in allowance? Can you show the T-Account of this transaction?
J
John MoffatTutor·
I explain all of this in my free lectures, and write up the t-accounts (even though, of course, you will not be asked to write up any t-accounts in the exam).
Why are you attempting the test without having watched the lectures first?
S
stelios·
For question Number 4 i didn't understand the whole exercise! why should we debit receivables for number 3? for the amount of 1800?
J
John MoffatTutor·
Cash received has been included in the account when it should not have been. The entry should have been debit cash, credit irrecoverable debts expense. Instead they have debited cash and credited receivables.
So to correct the mistake, debit receivables and credit irrecoverable debts expense.
T
taqi1·
Dear John,
Sorry to bother you.
in Option# 3 which word indicates that its recorded as "debited cash and credited receivables"
Im confused totaly.
J
John MoffatTutor·
The first line of the question says that it is included in the receivables account. As I explain in the lecture, it is a common mistake in real life - the bookkeeper doesn't realise that the debt had been written off previously and therefore does what we normally do when we receive cash from receivables, which is to credit receivables.
T
tori1984·
Dear John,
Thank you for that highlight in the question. I was also wondering were it was indicated in the question.
Much appreciated.
J
John MoffatTutor·
You are welcome :-)
T
taqi1·
Many Many Thanks
J
John MoffatTutor·
You are welcome :-)
Y
yash021·
Hi sir,
For number 5 could you please explain me how to calculate the allowance for receivable.
J
John MoffatTutor·
It doesn't need calculating - the question tells you what it is!! The question says that the allowance is adjusted TO $60,000. So the allowance is $60,000 :-)
P
Peter·
Urgh 1 out of 5, and i was so confident...
J
John MoffatTutor·
I hope you have sorted out your mistakes.
E
enchantingtrang·
Hi sir,
Revised receivables means our opening balance, right? As you said, we will credit receivables 2900 and debit cash 2900. So we will credit Receivable (2900 + 2500) and debit Receivables 1800. This is my caculation: 50000-1800+2900+2500 = 53600. I don't know which is misunderstanding here. Please help me to clarify it.
Thanks.
E
enchantingtrang·
This is your reply:
When cash is received from a doubtful debt we debt cash credit receivables, so entering it was correct. (If there was an allowance then the debt was doubtful, but it would still be left owing on receivables until it is paid.)
Another question, is 50000 the closing balance? Hope it will not bother you
Thanks,
Trang.
J
John MoffatTutor·
$50,000 is the balance on the trial balance, and is therefore the balance at the end of the year before dealing the the irrecoverable and doubtful debts (and correcting the error that had been made during the year regarding the cash received from Ken).
The question requires you to calculate the correct receivables balance that will appear on the SOFP.
The irrecoverable debt (Mike) needs writing off, which reduces the balance. Doubtful debts do not affect the receivables balance (so 2 and 4 are irrelevant). The money from Ken should not have been entered on the receivables account because the debt had already been written off. It had been credited to the account but should not have been, so we need to correct it by increased the balance.
Did you watch the free lectures before attempting this test?
M
Maria·
I can’t believe I’ve done it all right! Thank you so much Mr. John without I wouldn’t lass any exam and do so well ! God bless you!
M
Maria·
Without you* pass* sorry lol
J
John MoffatTutor·
Congratulations - that is great news :-)
K
Kanan·
Hi,
In the explanation there is small mistake. Required decrease of allowance is 36000. Which is 93600 - 57600 = 36000. In the answer it is 38000.
Best regards.
J
John MoffatTutor·
Thank you - I will have it corrected.
However the final answer of $52,800 remains correct.
P
Philippa·
Hi,
Apologies if this has already been covered but I cannot seem to get my head around this part of question 4!
Included in the $50,000 receivables is $1800 cash received which had previously been written off. So when it was previously written off the double entry would have been CR Receivables DR Irrecoverable Debt. So when the cash is received, shouldn’t be double entry be CR Irrecoverable Debt DR Cash?
Is the question saying that when the cash was received it was recorded like so – CR Irrecoverable Debt DR Receivable? Then that is incorrect, so we need to CR the 1800 out of Receivables – Why is it being DR on top of the 50,000 if it’s already included?
Thank for your help!
J
John MoffatTutor·
Since it says that the receivables balance includes the 1800, it means that the entry the bookkeeper made must have been Dr Cash Cr Receivables. As you have written, the entry should have been Dr Cash Cr Irrecoverable debts. So to correct the mistake we need to Dr Receivables Cr Irrecoverable debts - this will increase the receivables balance.
I know the wording is a bit confusing - saying it is included does not mean it is part of the total, simply that it is included (i.e. had been entered) in the account in arriving at the current balance. However I am afraid it was the wording in the real exam when this was asked.
B
Bamma·
I am able to view any question for f3 chapter 8.please help.which browser should i use?
J
John MoffatTutor·
The quiz is working fine. You should ask on the support page - the link is above.
S
sikshamohun·
me too .. what did you do? i have latest versions of browser and windows.
J
John MoffatTutor·
Read the previous reply and ask on the support page!
Y
Yvette·
Hi John,
Please could you explain the 'total expense' line in your workings out in questions 1-3. Why are some of them added and some of them subtracted?
V
vaughn1203·
if its an increase in allowance you add it in your total expenses as an increase in your allowance is an expense.
if your allowance decreases you subract it in your total expenses as you have reduced your allowance for your receivables...i hope this helped i didnt really know how to explain it properly
S
Sora·
Hello sir,
In question 4 the amount received from Ken 1800, why are we debiting receivables and crediting cash? Normally when we receive cash we debit it right?
J
John MoffatTutor·
Who said anything about crediting cash??
When we receive cash from a debt that has been written off, we debit cash and credit the irrecoverable debts expense account.
They should not therefore have credited receivables.
I do suggest that you watch my free lectures on this - they are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
H
Honey·
Hi sir,
I am quite confuse at Q5 for using bad debt $72000 as allowance for receivables, why don't we use the adjusted figure?
Please explain me,
H
Honey·
Sorry sir, due to my misunderstanding about feedback!
I am now clear?
J
John MoffatTutor·
I am pleased that you are now clear :-)
R
radhamani4·
for that 4th question why are we not taking the last transaction
J
John MoffatTutor·
It was correct to record the cash received in the account.
When there is a doubtful debt, an allowance is created but it remains in receivables.
When the cash is received, we debit cash and credit receivables as usual.
A
Agnese·
You are saying we credit receivables but in answer receivables was not reduced for 2900.00.
So we credit receivables and cancel allowance.
J
John MoffatTutor·
Receivables would have been reduced when the cash was received and therefore no further adjustment to receivables is needed.
The question is not asking about what we do with the allowance (but what we do is dealt with in full in my free lectures).
When a previously doubtful debt pays us, then we debit cash and credit receivables (and again, this will already have been done during the year when the cash was received).
M
meeena·
dear sir
yesterday I ask a question but I cant see my comment here
I ask about question number 4 that when we receive cash 2,900 and it was previously allowed. but we received it, cant we add it to our receivable?
J
John MoffatTutor·
Your comment is immediately below, and so is my answer to it :-)
A
amina·
In ACCA books its written THE STATEMENT OF FINANCIAL POSITION SHOULD HAVE RECEIVABLES NET ALLOWANCE.you are wrong sir
J
John MoffatTutor·
I am not wrong - it is you who is obviously not understanding. This question was an actual past real exam question!!
Of course we show receivables on the SOFP net of the allowance, but receivables and the allowance are recorded in two separate accounts.
It might be an idea if you watched our free lecture on irrecoverable debts and allowances before you start making ridiculous comments.
M
meeena·
dear sir,
thanks for best lectures
please explain to me the bellow question.
1- in question number one decrease in allowance is 93,600-57,600= 36000 but in answers it is mistakenly written 38,000.
2- also in question number 4 can you please explain me that why we are considering 2500 as irrecoverable while it is included in receivable 50,000 and why we consider 1,800 received while it is written off. and why we are not considering 2,900 allowance while its received.
J
John MoffatTutor·
Thank you noticing the mistake in the workings for question 1 - I will have it corrected.
Fortunately the final answer is correct :-)
For question 4, the 2,500 should not be included in receivables because Mike has gone into liquidation (which means he is bankrupt). It should therefore be regarded as irrecoverable and removed from receivables.
The cash received from Ken should not have been entered into receivables - the entry should be debit cash, credit irrecoverable debts expense. Since it has been entered in receivables it must have been credited, but should not have been. So we need to debit receivables to remove the wrong entry.
When cash is received from a doubtful debt we debt cash credit receivables, so entering it was correct. (If there was an allowance then the debt was doubtful, but it would still be left owing on receivables until it is paid.)
R
Rachel·
In question 1, why do you subtract the decrease in allowance from the irrecoverable debt? Wouldn't the income statement include both numbers? thanks
R
Rachel·
Would it be because you credit the bad and irrecoverable debt expense account?
R
Rachel·
Never mind, figured it out on my own. There is an increase in the allowance, therefore I debit the allowance by the change in allowance and credit the expense account. Balance of expense account should be 0 and the difference transfers over to the income statement. Similar to one of the scenarios that we worked through in example 3 in the notes. I noticed that most of the questions revolve around increase and decrease of allowance, has that question been typically in the exams?
J
John MoffatTutor·
I am glad you figured it out. In fact you can deal with it in more than one way - all the matters is that the final expense and the final balance on the allowance are correct. The way I deal with it is the most sensible and the easiest way.
Questions in the exam will almost certainly involve an increase or decrease in the allowance. However, in the exam you cannot possible be asked to prepare t-accounts - it will only be asked in Section A as a MCQ and therefore how you do your workings is not relevant (only the final answer is marked) :-)
K
kemkemkem·
I really do not understand sir. When the question said "adjust the allowance for receivables to the equivalent of 5%", does it mean that 93 600 must be reduced to 57 600? If that is the case, then shouldn't the 57 600 (seeing as it is now the balance on the allowance for receivables account) be debited to the irrecoverable and doubtful expense account (88 800 + 57 600=146 400) and then credit the irrecoverable and doubtful debt expense account by (93 600 - 57 600=36000)? That would then leave a balance on the irrecoverable and doubtful debts expense account of (146 400 - 36 000=110 400)? I am trying to do it the T-accounts way because I understand better that way.
J
John MoffatTutor·
There is already a credit balance on the allowance account of 93,600 from last year. We need to reduce this to 57,600 and we therefore debit the allowance account with the difference of 36,000 and credit the irrecoverable debts expense account.
For the irrecoverable debt, we debit the irrecoverable debts expense account with 88,800.
This leave a balance on the irrecoverable debts expense account of 52,600 to be transferred to the SOPL.
Did you watch the free lectures on this before attempting the test?
For Q1:
-there appears to be a typo that can trip up people new to accounting like myself that don't know what debt write off is.
-when it says "write off debt totalling 88,800" does this imply that ALL debts were written off, totalling 88,800? Leaving 4,800 (from 93,600) as statistical approximation? If yes then that solves all my problems, if not then I'll comment another question afterwards.
Thanks
This is the actual wording of a past examination question and is fine.
Lecture example 1:
receivables 62,500 - irrecoverables (2500+1600) = 58,400
58,400 - doubtful debt 2800 = 55,600
55,600 x 4% = 2224
So all problematic debts are subtracted from receivables before multiplying by general allowance.
You did the same thing in lecture example 2:
receivables 82,000 - irrecoverables (5000 + 3000) = 74,000
74,000 - doubtful (8000 + 2000) = 64,000
64,000 x 4% = 2560
Again, all problematic debts removed before x % to find general allowance.
Why isn't it in quiz q1 here also:
(1,240,800 - 93,600) x 5% to find general allowance
instead of (1,240,800 - 88,800) x 5%?
This leaves (93,600 - 88,800) 4800 problematic debt in the receivables when multiplying by 5%. Or is this not problematic debt?
Thank you for your time.
In question 1 there is no mention of any specific allowance and therefore the general allowance is calculated on the receivables after writing off the irrecoverable debts.
How the allowance at the start of the year was calculated is of no relevance because everything will have changed during the year. We are only interested in the calculation at the end of the year (and then adjust whatever the existing balance was sitting there since the start of the year to get the balance we have calculated as being needed at the end of the year).
Can you tell me in the fourth question 3 rd part(cash received from Ken) why we must debit receivables? You said in the lecture, when we receive irrecoverable debt from previous year, we debit cash and credit irrecoverable debt expenditure account? What did I miss?
in Q4 shouldn't we subtract 2900 as that debt was only allowed for and remained in receivables account. So when cash was received there should be entries that close off that 2900 in irr. expense and allowance account, but also cash - debit and receivables - credit?
Good day. For Q3, I would like to understand why don't I remove the irrecoverable debt from receivables (173,760 - 2,040)?
However the final answer is correct.
The decrease in the allowance should read as being 36,000 (not 38,000).
So the total expense is 88,800 - 36,000 = 52,800.
The calculations are incorrect
Decrease in allowance 93,600 - 57,600 = 36,000 not 38,000
88,800 - 36,000 (not 38,000) = 52,800
Unless I am going mad!!!
Why are the irrecoverable debts not deducted from the receivables when deriving the new allowance?
If they were already written off during the year according to the answers, then how can the decrease in allowance be deducted from it to reduce the total expense?
It specifically says that the debt was written off during the year, and so the net expense for the year is the irrecoverable debt less the decrease in the allowance for receivables (as explained in the free lectures).
100% scored
Remember we can't allowance value in receivable account then 2900 doesn't belong to receivable acc
Why we add Kenn in Receivables???
But when Irrecoverable debt is recovered....
The Accounting entry is:
Dr Cash
Cr Irrecoverable debts Expense
(Kaplan Publishing)
Plz Kindly Clarify...
Thanx
For new allouncea why we dont minus the irr from receviable?
Why we add net allowance and a decrease in allowance in total expense[total expense=4000+2050]
why we did not subtract them[total expense =4000-2050]
plx tell me
Q1 - ‘o’ has been written instead of ‘off’.
And in one of the working for the answers, your wrote =38,000 instead of 36,000. (Although the final answer was correct)
Thanks to OpenTuition ?
When the question says that the receivables on 31 December are $140,000 it does not need to use the word 'balance' because it can only be the balance!
Did you watch the free lectures on this before attempting the test?
Did you watch the free lectures before attempting the test?
I think there is no any other indication for Ken except this small point at starting the question ( This including...) otherwise we are not supposed to Credit the receivable for receiving the cash which had been previously written off. In stead we will record this amount (e.g: 1800) as sundry income.
Thanks in advance
Question 4 is still confusing in Ken part - 1800. I understand that 1800 was is to be debited from the recivabkes and credit irrecoverable exp. so if it’s debited it means that it will be
1. 50,000- 2500= 47500
2. Then 47500- 1800( debiting the receivables ) = 45700
3. 45700 + 1800 = 47500 then crediting the receivables again.
Are we suppose to leave the 1800 and not debit it and add to it again
For the answer to be 49300 it means the receivables was not debited with the 1800.
Please kindly clarify .
Thanks a bunch
For the irrecoverable debt, we debit the irrecoverable debts expense account with 88,800.
This leave a balance on the irrecoverable debts expense account of 52,600 to be transferred to the SOPL.
Did you watch the free lectures on this before attempting the test?
John's debt was doubtful and so the debt remained on receivables but an allowance was made. He has paid and so they will have credited receivables (and the allowance is no longer needed).
Had you watched the free lectures before attempting the test?
What is confusing me here is the cash figures in 3 and 4. I actually thought that the 1800 should be ignored in this particular case because when a debt is written off as a bad debt and is paid later, the accounts that should be affected are cash and irrecoverable debts account not the receivables account so personally I would actually add the 2900 instead of 1800. Thanka
As far as the 2900 is concerned. this debt had only been allowed for, and so it was correct for them to have entered it in the receivables account.
So, to correct (as the printed solution clearly states) we need to Dr Receivables to correct the previous incorrect credit
Why are you attempting the test without having watched the lectures first?
So to correct the mistake, debit receivables and credit irrecoverable debts expense.
Sorry to bother you.
in Option# 3 which word indicates that its recorded as "debited cash and credited receivables"
Im confused totaly.
Thank you for that highlight in the question. I was also wondering were it was indicated in the question.
Much appreciated.
For number 5 could you please explain me how to calculate the allowance for receivable.
Revised receivables means our opening balance, right? As you said, we will credit receivables 2900 and debit cash 2900. So we will credit Receivable (2900 + 2500) and debit Receivables 1800. This is my caculation: 50000-1800+2900+2500 = 53600. I don't know which is misunderstanding here. Please help me to clarify it.
Thanks.
When cash is received from a doubtful debt we debt cash credit receivables, so entering it was correct. (If there was an allowance then the debt was doubtful, but it would still be left owing on receivables until it is paid.)
Another question, is 50000 the closing balance? Hope it will not bother you
Thanks,
Trang.
The question requires you to calculate the correct receivables balance that will appear on the SOFP.
The irrecoverable debt (Mike) needs writing off, which reduces the balance. Doubtful debts do not affect the receivables balance (so 2 and 4 are irrelevant). The money from Ken should not have been entered on the receivables account because the debt had already been written off. It had been credited to the account but should not have been, so we need to correct it by increased the balance.
Did you watch the free lectures before attempting this test?
In the explanation there is small mistake. Required decrease of allowance is 36000. Which is 93600 - 57600 = 36000. In the answer it is 38000.
Best regards.
However the final answer of $52,800 remains correct.
Apologies if this has already been covered but I cannot seem to get my head around this part of question 4!
Included in the $50,000 receivables is $1800 cash received which had previously been written off. So when it was previously written off the double entry would have been CR Receivables DR Irrecoverable Debt. So when the cash is received, shouldn’t be double entry be CR Irrecoverable Debt DR Cash?
Is the question saying that when the cash was received it was recorded like so – CR Irrecoverable Debt DR Receivable? Then that is incorrect, so we need to CR the 1800 out of Receivables – Why is it being DR on top of the 50,000 if it’s already included?
Thank for your help!
I know the wording is a bit confusing - saying it is included does not mean it is part of the total, simply that it is included (i.e. had been entered) in the account in arriving at the current balance. However I am afraid it was the wording in the real exam when this was asked.
Please could you explain the 'total expense' line in your workings out in questions 1-3. Why are some of them added and some of them subtracted?
if your allowance decreases you subract it in your total expenses as you have reduced your allowance for your receivables...i hope this helped i didnt really know how to explain it properly
In question 4 the amount received from Ken 1800, why are we debiting receivables and crediting cash? Normally when we receive cash we debit it right?
When we receive cash from a debt that has been written off, we debit cash and credit the irrecoverable debts expense account.
They should not therefore have credited receivables.
I do suggest that you watch my free lectures on this - they are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
I am quite confuse at Q5 for using bad debt $72000 as allowance for receivables, why don't we use the adjusted figure?
Please explain me,
I am now clear?
When there is a doubtful debt, an allowance is created but it remains in receivables.
When the cash is received, we debit cash and credit receivables as usual.
So we credit receivables and cancel allowance.
The question is not asking about what we do with the allowance (but what we do is dealt with in full in my free lectures).
When a previously doubtful debt pays us, then we debit cash and credit receivables (and again, this will already have been done during the year when the cash was received).
yesterday I ask a question but I cant see my comment here
I ask about question number 4 that when we receive cash 2,900 and it was previously allowed. but we received it, cant we add it to our receivable?
Of course we show receivables on the SOFP net of the allowance, but receivables and the allowance are recorded in two separate accounts.
It might be an idea if you watched our free lecture on irrecoverable debts and allowances before you start making ridiculous comments.
thanks for best lectures
please explain to me the bellow question.
1- in question number one decrease in allowance is 93,600-57,600= 36000 but in answers it is mistakenly written 38,000.
2- also in question number 4 can you please explain me that why we are considering 2500 as irrecoverable while it is included in receivable 50,000 and why we consider 1,800 received while it is written off. and why we are not considering 2,900 allowance while its received.
Fortunately the final answer is correct :-)
For question 4, the 2,500 should not be included in receivables because Mike has gone into liquidation (which means he is bankrupt). It should therefore be regarded as irrecoverable and removed from receivables.
The cash received from Ken should not have been entered into receivables - the entry should be debit cash, credit irrecoverable debts expense. Since it has been entered in receivables it must have been credited, but should not have been. So we need to debit receivables to remove the wrong entry.
When cash is received from a doubtful debt we debt cash credit receivables, so entering it was correct. (If there was an allowance then the debt was doubtful, but it would still be left owing on receivables until it is paid.)
Questions in the exam will almost certainly involve an increase or decrease in the allowance. However, in the exam you cannot possible be asked to prepare t-accounts - it will only be asked in Section A as a MCQ and therefore how you do your workings is not relevant (only the final answer is marked) :-)
For the irrecoverable debt, we debit the irrecoverable debts expense account with 88,800.
This leave a balance on the irrecoverable debts expense account of 52,600 to be transferred to the SOPL.
Did you watch the free lectures on this before attempting the test?