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HI John.
i want to ask how should we account for credit losses when calculating the section of cash flows from operating activities using the direct method?What do you mean by “credit losses” – it is not a standard accounting term.
Credit losses are caused by customers not paying.
Suppose Debtor A has been written off as irrecoverable, and then at a later stage declared insolvent,how do we account for that in the statement of cash flows?They are not called credit losses in the exam (or in the accounting standards) – the term is irrecoverable debts.
They have no effect on the Statement of Cash Flows. The reason is that the expense of removing them will already have reduced the profit and therefore also the cash from operating activities.
Have you watched my free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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