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At the year end, Bao had a trade receivables balance of $100,000 and an allowance for receivables of S5,000. Bao has not yet accounted for a receipt of S500 in respect of a debt against which an allowance had previously been made or a receipt of $1,000 in respect of a debt which had been written off in the previous year. Bao wishes to reduce the allowance for receivables by $1,965.
What balances will be shown in Bao’s statement of financial position at the year-end for receivables and the allowance for receivables?
His receivable should be 100,000 – 1965-500=97535. But the correct answer is 99500 HOWWW?
The allowance for receivables does not affect the balance on the receivables account.
On the SOFP we do show receivables less the allowance, but they are two separate accounts with two separate balances on them.
Do watch my free lectures on this where it is explained in detail.
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