Irrecoverable Debts and Allowances Example 3 – ACCA Financial Accounting (FA) lectures
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sir what would happen if the expense was negative? another thing is instead of crediting the expense because of previously irrecoverable debt, could we credit other income?
It is unlikely to be the case in the exam, but if so then it can either be shown as other income or more likely as a negative expense – there is no rule and either is allowed.
Hi John,
I couldn’t quite comrehend that part about 8000 (Irr. expense – Debit, Receivables – Credit). You did not adjust allowances and imho the general allowance was not correct. Or maybe I missed something. I tried to calculate the “long way” and probably messed something up?.
In my calculations there is one difference and it’s that allowances are higher for 2560 (from previous year balance) than in your calculations. Maybe previous year allowances must not be considered?
hi John. hope you are well.
Why do you subtract 6000 from the 87200 if you will be adding in the workings.
One more thing, John. If you don’t mind. 馃檪
I completely get that we calculate the general allowance as follows: (拢87200 – 拢6000) 脳 4% = 拢3248. I just want to make sure that I understand the following 100% correct: The brought forward balance of 12560 in the Allowance for doubtful receivables account has no place in the calculation of the general allowance, right? With the reason being that every year, we need to review our position and declare how much we need to provide for specific allowance, correct? So we don’t need to analyse how much of the 12560 was specific/general in the previous year, correct?
That is correct 馃檪
Thank you. This lecture of yours has answered so many of my questions! I am doing AAT but if I want to understand more fully, ACCA is helpful! 馃檪 The only tiny bit which is still lurking in my mind is that for George, which you have already mentioned in your lecture. But to clarify: when his doubtful debt becomes irrecoverable, we DR irrecoverable debts, CR SLCA (at this moment, there is a cost incurred in this step). However, if we remove his doubtful debt at the same time, which is DR Account for doubtful receivables, CR irrecoverable debts, then the net result is CR SLCA, DR Account for doubtful receivables, in which case there is no cost incurred to move his debt from being doubtful to being irrecoverable. Is this something I need to worry about? I know ultimately it doesn’t affect the overall expense of doing everything which is 拢6488.
Thank you. You have helped me so much in your lecture. 馃檪
You can do what you suggest – that is fine. However it just adds on extra time and there is a lot of time pressure in the exam. (And remember that you cannot be asked to write up t-accounts in the exam)
We can (and end up with the same final result) but much easier and quicker is to do what I do in the lecture. By not including her in the calculation of the closing allowance it is automatically removing her from the brought forward allowance.
Thank you very much. Puiman
Hello John,
Could be a very silly question, but I really couldn’t get my head round it. 馃檨
Why do we not need to DR Allowance for receivables account once Ann paid up, as it is no longer doubtful?