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Dear Mr Moffatt
I have question in relation to your video on irrecoverable debts and allowances. It has to do with example 2 and 3 from FA notes page 37 and 38. In example 2 your ending balance on receivables was 82000. There were irrecoverable debts for 8000 altogether and total allowance for doubtful debts 12560.This means you reduced assets by 20560 (8000+12560 =20560).At the same time you reduced capital because there was the same amount in expenses. Everything balances perfectly.In example 3 you have balance on receivables 97.000 but receivables will be presented in balance sheet with the amount of 77952 (97000-8000-4000-9248). The difference is 19048.This means you reduced assets by 19048. Why you reduced capital only by 6488 ? Balance sheet doesn’t balance now or at least I think it doesn’t balance. Please tell me why when compared to earlier example reduction in assets doesn’t equal in reduction in capital (expenses) in example 3 ?
Before making the entries at the end of the year, the amount shown on the SOFP (we stopped calling it the balance sheet many years ago) would have been 97,000 – 12,560 = 84,440 (the balance on the allowance account would still be there from last year.
After making the entries the amount shown on the SOFP is 87,200 – 9,248 = 77,952.
The reduction in assets is therefore 84,440 – 77,952 = 6,488.
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