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The brought forward balance on the Allowance for Irrecoverable Debts Account is $12,000. In the
period debts amounting to $5,000 are written off. At the end of the period the balance on the
Allowance for Irrecoverable Debts Account is to be $14,000.
What is the amount taken to the Income Statement in respect of irrecoverable debts?
A $19,000
B $7,000
C $17,000
D $3,000could u show me the working in T account format ?
I can’t show T accounts here, but:
Draw a Allowance for Irrecoverable Debts Account T account and put the opening balance of 12,000 at the top of the credit column (this would have been set against receivables on the previous SOFP to reduce them.
The 5,000 written off would be credited against the debts and debited to the Allowance for Irrecoverable Debts Account account. The running balance would now be 7,000 Cr.
This is to be increased to 14,000 so another 7,000 needs to be credited and the Dr of this is the IS expense.
So answer B is correct.
(This is to be increased to 14,000 so another 7,000 needs to be credited and the Dr of this is the IS expense) this part I didn’t underderstand
You are told that the final balance on the Irrecoverable Debts account has to be 14,000. The opening balance of 12,000 had been reduced by 5,000 to 7,000 (as explained above). So needs an additional 7,000 to increase it to 14,000. Increasing the Irrecoverable Debts account is a way of reducing the value of the receivables asset because in the SOFP receivables are shown net of the Irrecoverable Debts account. Decreasing the value of the net receivables is an expense (–a bit like sepreciarion charges) so the final double entry needed is:
Dr Bad Debts expense [an Income Statement amount]
Cr Irrecoverable Debts [ an SOFP amount]Being increasing the Irrecoverable Debts balance to the required 14,000.
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