Trade Receivable Expense and allowance for receivable (video below)
At 1 January 20X7 a company had an allowance for receivables of $4,500
At 31 December 20X7 the company’s trade receivables were $114,500.
It was decided:
a) To write off debts totaling $7,000 as irrecoverable
b) To adjust the allowance for receivables to the equivalent of 10% of the remaining receivables
What figure should appear in the company’s statement of profit or loss for the total of debts written off as irrecoverable and the movement in the allowance for receivables for the year ended 31 December 20X7?
Answer
| $ | |
| Closing receivables | 114,500 |
| Irrecoverable debts write off | (7,000) |
| 107,500 | |
| Allowance required (10% x 107,500) | 10,750 |
| Existing allowance | (4,500) |
| Increase required | 6,250 |
| Charge to statement of profit or loss (7,000 + 6,250) | 13,250 |
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