Irrecoverable Debts and Allowances Example 2 – ACCA Financial Accounting (FA) lectures
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Hello, again, great lecture, thank you! If we are asked on the exam to give the of the receivables at the end of the year, should we say it’s $74000 or $61440?
If it asks for the balance on the receivables account, then 74,000.
If it asks for the receivables on the SOFP then 61,440 馃檪
Understood, thank you 馃檪
Hi John, great lesson. Im slightly confused why we do not, for irrecoverable debts, Cr account receivable – Dr sales (from the receivables that we know where made on credit sales)? instead you brought different accounts types. Thank you
Although there would be the same net effect on the profit, we do need to know separately how much we are selling and how much we are losing because of people not paying (because, for example, if many are not paying we might be more strict as to who to allow to buy from us on credit).
So would the other 82,000 that is in Receivables be, be credited into Sales as 82,000?
Sir, Allowance for Receivables will come under what within the Account Equation ?
Asset + Expense + Drawing = Liabilities + Capital + Sale Income
Asset (as a reduction to receivables)
If 74,000 appears balance sheet, why we need subtract doubt recoverable!
We do not subtract recoverable debts – we subtract the allowance for doubtful debts (so that we only end up showing the total we feel certain that we will receive).
Hi John.
Why we are required to expense out doubtful debt amount provided that we are creating its allowance as well.
The only expense in relation to doubtful debts is the cost of increasing the allowance from what it was at the start of the year to what is required at the end of the year.
Sir,shouldn’t we express the entire receivebles in SOFP then subtract BAD DEBTS Then subtract Reserve
Receivebles. 82000
(-) irrevocable. 8000
(-)Reserve. 12560
___________________________
61,440
Shouldn’t we show all receivables and then subtracting both rather than showing receivbles exclusive of Bad debts?
I have a doubt.
Doris currently has a receivables balance of $47,800 and an allowance for receivables of $1,250. She has just received $150 in respect of half of a debt that she had made an allowance against. She now believes the other half of the debt to be bad and wants to write it off. She also wants to increase the allowance for receivables to $1,500.
What is the total charge to profit or loss in respect to these items?
Can someone help me with this problem?
Hello, I am seeking clarity on how you arrived at the receivables figure in question one vs question two. The total irrecoverable debt and allowance were deducted from the receivables to get the ending figure in question 1. However, in question 2 why weren’t the figures calculated and added up and subtracted from the balance in the receivables account?
Are you referring to the examples in the lecture notes that I work through in the free lectures? Because the treatment is the same in both examples. We subtract the irrecoverable debts from the receivables, and in the SOFP we show the final receivables figure less the allowance for receivables.
I think there’s a mistake in example 2.
Specific provision of $10,000 was not subtracted in SOFP.
Could anybody confirm this please?
No – it is correct. The allowance in the SOFP is the total of the specific and the general allowances.
hello
I have a question – do we calculate general allowance after taking off the irrecoverable debts only ( example one) or after irrecoverable + doubtful ? (example 2)
Are there any rules to follow ?
Thank you !
The general allowance is calculated after removing any irrecoverable debts and after subtracting any specific allowance. This is explained in the lectures.
Hello, I think in example 2 one figure is missing.
SOPL Irrecovable and doubtful debts expenses: 12 0560 (doubtful debts expenses + general allowance)+ 8 000 (Irrecovable one, John and Paul )= 20 0560$ in total.
There is no figure missing.
The expense in the SOPL is the total of the irrecoverable debts and the change in the allowance.
basiaguziczek
You need to omit extra zero (0) you added. It should be $12,560 and $20,560 respectively.