Allowance for receivables
An allowance for receivables reduces the amount reported for receivables to reflect estimated non-collection. Individual doubtful balances and, where required in an FA question, an allowance on the remaining balances are considered after specific irrecoverable debts are written off. The allowance is a credit balance deducted from gross receivables. An increase is normally an expense; a decrease reduces the expense.
Worked example
After write-offs, receivables are $50,000 and the required allowance is 4%: report an allowance of $2,000 and net receivables of $48,000.
Common mistake
Charge the movement in the allowance to profit or loss, not the entire closing allowance if an opening allowance already exists.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: Receivables allowance, Allowance for doubtful debts