general allowance confusion( irrecoverable debt)

Mmish11y ago

Hi Sir, Please help! A company has gross receivables at the year end of $400,000. They have a specific allowance of $10,000, have written off $20,000 as irrecoverable debts and have a general allowance for $7,500. • Assuming that the end of the year receiveables has been adjusted for irrecoverable debt( 20,000) Net receivables= 400,000-10,000 =390,000 But the answer also minuses general allowance of 7,500? Why is this? I am confused because in another question… general allowance is disregarded? E.g. below. Calculate the missing sales Opening receivable balance 20,000 Irrecoverable debt 10,000 Sales return 49,000 Discount allowed 32,000 General allowance 12,000 Closing receivable balance 12,000 Why does sales = 83,000 and not 95,000 (I included general allowance in this calculation) why do we omit general allowance in this question.. but not in question 1? How do I no when to omit general allowance in any question. Please clarify! Thanks

John MoffatTutor11y ago#1

Net receivables means: receivables less allowance for receivables. If we make an allowance it does not affect the receivables account at all - we only reduce receivables when a receivable is removed as irrecoverable.

Mmish11y ago#2

Thanks ok sir, thanks but i am still confused... you haven’t really answered my question.... the question was.. when calculating net receivables.. i understand from your comment that it is receivables minus allowance for receivables= net receivable. in the question there are two allowances for receivables- specific allowance (10,000) and general allowance (7500). the answer minuses both allowances (10,000 and 7500) to get net receivable... and I want to understand why.. because in another question on control accounts.. Calculate the missing sales Opening receivable balance 20,000 Irrecoverable debt 10,000 Sales return 49,000 Discount allowed 32,000 General allowance 12,000 Closing receivable balance 12,000 when calculating the missing sales figure.. the answer disregards general allowance, when constructing out t account, and finding out the missing figure for sales. why is this? Is it because both questions are asking seperate things?

John MoffatTutor11y ago#3

I have answered both of your questions!! Of course it subtracts both allowances, because the total allowance for receivables is the total of the specific and general allowances. I also answered your other question. Although the net receivables on the Statement of financial position is the balance on the receivables account less the balance on the allowance account, when you are looking at the receivables account (receivables ledger control account) we never enter the allowances - they appear in a separate account. I really do suggest that you watch the free lectures on irrecoverable and doubtful debts.

Mmish11y ago#4

ok! sorry! thanks! ok i will watch the video. thanks

John MoffatTutor11y ago#5

Do ask again if you are confused about anything in the lecture :-)

Mmish11y ago#6

just watched the lecture. very useful! thanks i am not confused again

John MoffatTutor11y ago#7

That is great :-)

Sign into reply to this topic.