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Hi,
I’m stumped by a question from a book I am going through and hope you can help. I’ll paraphrase below.
During the year 500 pesos of debt was written off, this includes 100 pesos of of debt previously included in the allowance for receivables.
At the start of the year the allowance for receivables was 850 pesos, at year end the allowance required was 1000 pesos.What is the charge to P/L for receivables expense that year?
Could you also please show the accounting treatment for a doubtful debt included in the receivables allowance from a previous financial year written off in a later one.
Thanks
Why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA approved publishers – they contain answers and explanations.
The irrecoverable debt is 500.
The increase in the allowance is 1,000 – 850 = 150.
Therefore the expense in the SOPL (we stopped calling it P&L many years ago) for irrecoverable and doubtful debts (we do not call it receivables expense) is 500 + 150 = 650.(Alternatively, if you prefer, of the 500 irrecoverable debt you can charge the irrecoverable and doubtful debts expense account with 400, and reduce the allowance brought forward by 100 to 750. Then the increase in the allowance is 1,000 – 750 = 250, and the total expense is 400 + 250 = 650 again. It doesn’t matter which way you do it but the first way is the most efficient)
Do appreciate that there is very little testing of the actual double entries in the exam – it is not a bookkeeping exam but a financial accounts exam, and using t-accounts is usually unnecessary and wastes time.
I go through all of the entries in my free lectures. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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