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At 1 jan 2004 ,Tartar co had receivables of $380000.A specific allowance of $20000 had been made for a business customer ,Drab.The general allowance for receivables was 2.5%.During the year ,Drab went out of the business owing Tartar co $28000,none of which is expected to be recovered.At 31 dec 2004 ,Tartar had total receivables of $420000.There were no specific allowances but the general allowance for receivables was increased to 3%
what is the charge in the statement of profit or loss for the year to 31 dec for the allowance for receivables and irrecoverable debts?
can you please tell me why we do not deduct irrecoverable debts of 28000 from receivables 380000
380,000 is the receivables at the end of last year, and at the end of last year a specific allowance has been made for 20,000 owing by Drab. We cannot go back and change the opening balances.
During this year, there will no doubt have been lots of sales on credit and cash received (including quite possibly some transactions with Drab). When it is decided to write of Drab’s balance we will Cr Receivables and Dr Irrecoverable debts expense. (Although there is no need to actually write up t-accounts in the exam).
The free lecture on Irrecoverable and Doubtful Debts will help you.
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