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Please help me understand the solution to this question.
At 1 January 2011, there was an allowance for receivables of $3000. During the year, $1000 of debts were written off as irrecoverable, and $800 of debts previously written off are recovered. At 31 December 2011, it was decided to adjust the allowance for receivables to 5% of receivables which are $20,000.
What is the total receivables expense for the year?
A. $200 Debit
B. $1800 debit
C. $2200 debit
D. $1800 creditThe answer was shown to be D but i do not understand the solution.
The receivables allowance at 31 December 2011 was calculated as 5% of $20,000 which is $1000.
Are we not supposed to subtract the irrecoverable debt written off from the $20,000 before we calculate the percentage??
This is part is really confusing me. Please help.In future you must ask in the Ask the Tutor Forum if you want me to answer (this forum is for students to help each other).
The question says that the debts were written off “during the year”, so the 20,000 balance at the end of the year is already after removing the irrecoverable debts.
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