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In the statement of financial position at 31 Dec 20X5, Boris reported net receivables of $12000. During 2006 he made sales on credit of $125,000 and received cash from credit customers amounting to$115,500. At 31 dec 2006 boris decided to write off debts of $7100 and increase the specific allowance for recievables by $950 to $2100.
Sir I have watched your videos yesterdayy, still struggling what to do?
anyhhow here.. 12000-7100=4900 , also add 1150 (increase in allowance)then made a T account Dr 125000 cr115,500 so the answer comes as 15550. but the correct asnwer is 13,450…at the back of the kit the answer is that 15,550 is the gross receivables then subtracting 2100 to get 13,450…sir i dont get this part..okay we need to find out the net receivable so net means all allowances or irrecoverable debt subtracted ? or is it the gross receivable then secondly dont get why 15550 is being subtracted to 2100..it is an increase in allowance..should it not be added? please clear my concepts sirrNet receivables means receivables less allowance (i.e. the final amount showing on the SOFP)
so sir? how about 15550 why are they subtracting it? to allowance for receivables..please explain
okay i have another question
The sales revenue of J co was $2 million and its receivables were 5% of sales. J co wishes to have a specific allowance for receivables of $ 4000, which would make the allowance one third higher than the current allowance.
how will the profit for the period be affected by the change in allowance?
sir here first i will find out.. 5% of 2 million =100,000 then sir i dont get itdont get this
Required specific allowance for rec =4000
current allowance for receivable = 4000 X 3/4 = 3000 how????
inc in allowance 1000..i understand that increase in allowance reduces profit.. but please explain me the calculation of required and current allowance..how 3/4? it is one third..so 0.333 X 4000= it should be isnt it?I really don’t understand the first of these two posts.
The net receivables on the SOFP is the receivables (15,550) less the allowance for receivables (2,100). That is how it is always presented.
I have no idea why you are talking about subtracting 15,550 – we are not subtracting 15,550.Second question:
If you check yourself you can see that your answer cannot be correct!
4,000 at the end of the year has to be 1/3 more than the allowance was at the start of the year.
If it was X at the start of the year then it will be X + 1/3X at the end of the year.
Therefore X + 0.3333X = 4,000.It is then simple algebra to calculate what it was at the start of the year (3,000) and therefore that the increase is 1,000.
Hi Sir,
For the first question, why the net receivables on the SOFP is the receivables (15,550)? i only able to get 14400 usd and the allowance for receivables is 2100 usd, therefore able to get 12300 usd.
The balance on the receivables account at the start of the year was 12,000 + 1,150 (adding the specific allowance at the start of the year, because 12,000 was the net receivables and not the balance on the receivables account.
The balance at the end of the year on the receivables account is therefore:
13,150 (0pening balance) + 125,000 (sales on credit) – 115,500 (cash received) = 22,650.They then write of debts of 7,100, which brings the balance down to 15,550.
The allowance is 2,100, which means that the net receivables on the SOFP will be 15,550 – 2,100 = 13,450.
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