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At the end
Of 2017, Chester’ receivable’ balance is 230,000. He wishes to make specific allowance for Emily’s debt of 450 and Lulu s debt of 980. Irrecoverable debts of 11,429 should be written off.
What amount should be charged or credited to the statement of profit or loss in respect of irrecoverable and the allowance for receivable if the allowance for receivable at the star of the year was 11,700?
I didn’t get the answer
We Cr allowance for receivable by 450 and 980
Dr Irrecoverable by 450 and 980
Dr Irrecoverable by 11,429
Cr Receivable by 11,429
Why we subtract from irrecoverable 12859( 440+980+11429) – 11, 700 and we get the answer 1,159
I don’t understand the concept thnk youAt the end of the year they want the allowance for receivables to be 450 + 980 = $1,430.
There is already an allowance brought forward from last year of $11,700 and so this needs reducing by 11,700 – 1,430 = $10,270 so as to end up with the allowance required.This $10,270 is a negative expense.
In addition they have the expense of $11,429 of writing off the irrecoverable debts.
So the net expense for the SOPL is 11,429 – 10,270 = $1,159.
I do suggest that you watch my free lectures on irrecoverable debts and allowances for receivables, where all of this is explained with examples.
The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
Hi Sir,
Thank you for this explanation, and for your lectures. I have watched them on this topic and found them really useful!
I also found this question slightly confusing, becuase I didn’t realie that we should reduce the allowance brought forward from the last year because it didn’t specifically say that we weren’t going to continue to allow for the 11,700 next year too.
So, is it a rule that when we make allowances for specific debts at the end of a year, that we completely reduce the allowances pot from the start of the year to reflect the specific debts only, if the question doesn’t mention maintaining an allowances balance going forward into the next year?
Thanks in advance for any insight on this,
KellieQues1. Bank overdraft comes under which heading ( operating, finance , investing ) in cash flow statement
Ques2. Please tell rectification entry of these:
(1) A cheque for $78400 aid for purchase of a motor car was debited to Motor vehicle account as 87400
(2) One of the directors of the company paid $800 due to a supplier in the company’s payables ledger by a
personal cheque. The bookkeeper recorded a debit in the supplier’s ledger account but did not complete the double entry for the transaction. (The company does not maintain a payables ledger control account).Please also tell in this what’s the meaning of personal cheque.
live: In future please start a new thread when you are asking about a different topic. Your questions have nothing to do with irrecoverable debts.
1. It does not come under any of the headings!! The purpose of the statement is to explain the change in the total cash balances (which include the bank overdraft).
2. The motor vehicle account has been debit with $9,000 too much (87,400 – 78,400). Therefore the correcting entry is to credit motor vehicles and debit suspense account with $9,000. (Which may also need changing the depreciation charge for the year).
Paying by personal cheque means that the director paid it himself (it was not the company that paid it). So to correct it we need to credit the directors account with $800 and debit the suspense account.
Have you not watched my free lectures? They are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
kelmgrogan: If you are not told that an allowance is needed at the end of the year, then always we assume that the allowance brought forward is not needed.
At the end of the year we calculate whatever allowance is told is needed in the question (any specific allowances plus any general allowance) and then adjust the brought forward allowance by the difference.(If the brought forward allowance is a general allowance then it will never stay the same because the balance on receivables will have changed. If the brought forward allowance was a specific allowance then it will not be needed at the end of the year because either the debtor will have paid, or after waiting a year it will have been written off as irrecoverable.)
Sorry sir …next time I will keep this in mind
And sir if bankoverdraft doesnot appear in any heading .so if it is given in question is it to be ignored?
No. The brought forward net cash balances and the carry forward net cash balances at the end of the statement. The statement exists to explain why the balances have changes.
Live: It is not ‘ignored’. It is included in the total cash balances shown at the end of the statement as I explain in my free lectures.
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