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What is the difference between writing off receivables and providing allowance ? what do you mean by write off
Have you watched John’s F3 lectures? Or were you exempt from F3 and ill-advisedly took advantage of the exemption?
To write off a debt involves the double entry …
Dr Bad Debts Account
Cr ReceivablesTo provide for a doubtful debt (aka making an allowance) involves …
Dr Profit or Loss Account
Cr Provision Account (or Allowance Account)The difference is that in the second case the Receivable is still held within the accounting records whereas in the first case the Receivable is no longer held as an asset
Of course, in the second case, there is an allowance against the Receivables but the entity still hopes that the amounts due to the entity will be received … it’s just being a bit cautious and anticipating the possibility that those amounts will not be received
Watch John Moffat’s F3 lectures on this topic!
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