A Accounting

Receivables expense and allowance (video below)

At 1 January 20X8 a company had an allowance for receivables of $12,250.

At 31 December 20X8 the company’s trade receivables were $215,750  and it was decided to write off balances totaling $5,750 . The allowance for receivables was to be adjusted to the equivalent of 4% of the remaining receivables.

What total figure should appear in the company’s statement of profit or loss for receivables expense?

Answer

$ $
Trade receivables 215,750
Irrecoverable debts write off (5,750)
210,000
Closing allowance for receivables (4% x 210,000) 8,400
Opening allowance 12,250
Reduction (3,850)
Charge = 5,750 – 3,850 = 1,900 

Journal Entry

Dr. Irrecoverable debts ………….. 5,750

Cr. Receivable………………………………………….. 5,750

Dr. allowance for receivables…. 3,850

Cr. Irrecoverable debts …………………………….. 3,850

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