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Hi
I’d like an answer to the following:
When an allowance figure is brought forward why is the decrease or increase in allowance entered on the income statement and not the entire allowance.
Your assistance is greatly appreciated!
Kerron Duncan
Because it is only costing (or saving) us anything if we change the allowance. If the allowance were to stay the same then there would be no cost involved.
For a full explanation you are going to have to watch my free lecture on this – I cannot type out the whole lecture here 🙂
sir, I did not understand the double entry for allowance for receivable.
and the most confusing part for me is why don’t we adjust allowance for receivable in ledger a/c but adjust in SOFP.
for example, Opening receivable (OR)= 5000
3% allowance for receivable
In ledger a/c, we get the closing balance as 5000 itself. But, in SOFP we deduct that allowance from receivable.. why??The ledger account balance and the figure on the SOFP are the same – the SOFP is simply a list of the balances on the ledger accounts.
The balance on receivables is a debit balance, the balance on the allowance for receivables is a credit balance. On the SOFP we net the two off because net receivables is the amount that we feel certain of collecting.
sir, my confusions still not cleared. 🙁
‘The ledger account balance and the figure on the SOFP are the same – the SOFP is simply a list of the balances on the ledger accounts.’…. can you give me example?
Opening receivable (OR)= 5000
3% allowance for receivable..
here, ledger balance is 5000 but sOFP balance is 4850???? ledger balance and SOFP balance are not same as u have told earlier.
why dont we deduct allowance in ledger balance of receivables but in SOFP??? sir, could plz kindly clarify me… 🙁Have you watched the lectures? The SOFP used to be called the Balance Sheet, precisely because it is simply listing the balances the are left on the t-accounts.
You ask for an example, but the lecture that goes with Chapter 3 of the Course Notes goes through a complete example. I am not going to type out here the entire lecture!
With regard to the receivables, the balance on the receivables account is 5,000 (Dr). The balance on the allowance for receivables is 150 (Cr). On the SOFP we show the net of the two balances.
Again, I explain all of this in the free lecture on Irrecoverable debts and allowances.
You must watch the lectures. There is no point at all in just studying from the course notes. Either you watch the lectures, or you study from a Study Text from one of the approved publishers.
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