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Hello there,
this query is from a term i keep noticing in many trial balances while preparing financial statements (practicing F3)Allowance for receivable
I did do a lot of research on the topic and found nothing that actually satisfied me enough to understand the term clearly, hence im here today.
My first time here at opentuition.
Hope im in the right place.Requesting;
What it is?
How to look at it as an accountancy student/accountant/ in an accountants perspective?
Why is it shown on the credit side?(Sorry if my English is bad, i will try my level best to be as clear as possible)
Thank you
-Greetings from QatarHere is a tiny example to try and explain.
Suppose a business has receivables at the end of the year of $20,000. However suppose that includes one amount of $1,000 owing from a customer which they are worried might not pay (maybe it has been owing for a long time).
They still hope to get the money (so they don’t want to simply remove it as irrecoverable), but on the Statement of financial position they should only show the amount they think they are ‘certain’ to get (which here is $19,000).The balance on receivables of $20,000 is a debit balance. For the $1,000 they are unsure of, they create a credit balance on allowance for receivables.
On the Statement of financial position they then show the debit less the credit – so a net figure of $19,000.For more detail you should watch my free lectures on irrecoverable and doubtful debts. The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
Understood, now could you tell me when sending the allowance to credit side, under what term would u categorize it??
Under Capital ?
or
Under Income ?
or
Under Liability ?None of them!!
Is serves as a reduction in an asset.
(I do suggest that you watch my free lectures, as I wrote before 🙂 )
All our free resources (including the lectures and the lecture notes that go with them) are linked from the main F3 page.
You can get to it by clicking on ‘ACCA’ on the red bar at the top of the page, and then choosing ‘F3’ on the new bar that will then appear.
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