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Hello Dear Mike,
Hope you are well.At the beginning, I asked my question in the general forum but unfortunately no one asked.
So now I did copy and paste the question (from https://opentuition.com/topic/allowance-for-receivable-in-cashflow/) and put it it here and it would be great if you could will help me on this matter, if possible. ( Honestly it is NOT for paper F7!)
The question:
Hello Dear all,
My question is about the presentation of “allowance for receivable” in the cashflow.
Just for simplicity, suppose we have an entity that has make an allowance for receivable = 100 and it there is no other changes in the receivable.Method 1 :
Profit before tax : XXX
Addback :
Allowance for receivable = 100
Changes in the working capital:
Changes in the receivable = 0Method 2 :
Profit before tax : XXX
Addback :
Allowance for receivable = 0
Changes in the working capital:
Changes in the receivable = 100I know both method will create the same balance for “cash generation from operations” in the cashflow, but I am getting confused about the correct presentation ?
Thank you for you help,
RegardsThe figure “Allowances for receivables” is NOT separately disclosed within a set of financial statements (unless it is exceptionally large)
In a statement of cash flows, therefore, the effect of the account balance ‘Allowance for Receivables’ is limited to the adjustment of the receivables figure in the sub-heading ‘Changes in Working Capital’
That cash flow figure for Receivables within ‘Changes in Working Capital’ is calculated as the change in receivables net of the allowance last year compared with the equivalent figure for this year
OK?
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