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Allowance for receivables

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Allowance for receivables

  • This topic has 7 replies, 2 voices, and was last updated 6 years ago by John Moffat.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • August 31, 2016 at 9:52 pm #336645
    surajnagesh
    Member
    • Topics: 17
    • Replies: 14
    • ☆

    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 Qatar

    September 1, 2016 at 7:13 am #336710
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51555
    • ☆☆☆☆☆

    Here 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.

    September 1, 2016 at 10:01 am #336752
    surajnagesh
    Member
    • Topics: 17
    • Replies: 14
    • ☆

    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 ?

    September 1, 2016 at 12:05 pm #336784
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51555
    • ☆☆☆☆☆

    None of them!!

    Is serves as a reduction in an asset.

    (I do suggest that you watch my free lectures, as I wrote before 🙂 )

    September 1, 2016 at 12:23 pm #336791
    surajnagesh
    Member
    • Topics: 17
    • Replies: 14
    • ☆

    may i please know where i can find the video good sir?

    September 1, 2016 at 12:25 pm #336794
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51555
    • ☆☆☆☆☆

    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.

    September 1, 2016 at 12:28 pm #336797
    surajnagesh
    Member
    • Topics: 17
    • Replies: 14
    • ☆

    Found it, ty very much sir 🙂

    September 1, 2016 at 12:35 pm #336801
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51555
    • ☆☆☆☆☆

    You re welcome 🙂

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