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Good Morning Sir, I hope you can clarify one thing for me please in relation to opening and closing allowance for receivables. I do understand the concept but some question do account for movement in allowance and some don`t.
Allowance of 2% on 620,000 is 12,400 but my question is why are we not accounting for opening allowance which is 9,600 and record the movement instead of just taking 2%.
At 30 September 20X9, the balance on the receivables control account is $644,000. The accountant is preparing draft financial statements and must make the following adjustments:
(1) Write off debts totalling $24,000
(2) Record a receipt of $12,000 in respect of a balance which had previously been written off as irrecoverable.
(3) Make an allowance for receivables equivalent to 2% of trade receivables at 30 September 20X9. At 1 October 20X8, the allowance for receivables was $9,600.What amount should be recognised in current assets in respect of receivables in the statement of financial position at 30 September 20X9?
Answer is 607,600.Many Thanks
The question is asking for the statement of financial position, and it the SOFP we only show the receivables at the end of the year and the allowance for receivables at the end of the year.
If the question has asked for an extract from the Statement of profit or loss, then you would have need to use the movement on the allowance – i.e. the cost of increasing the allowance over the year.
I do suggest that you watch my free lectures on this. 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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