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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