8. Irrecoverable Debts and Allowances Flashcards
What is an irrecoverable debt?
When we are reasonably certain that the receivable will not be paid.
What is a doubtful debt?
When we think the receivable might not be paid.
How are irrecoverable debts treated in the financial statements?
They are removed completely and no longer appear in accounts receivable.
How are doubtful debts treated in the financial statements?
The debt is left outstanding in accounts receivable, but the amount is deducted as an allowance for receivables.
What is a specific allowance for receivables?
An allowance for particular debts where we know there is a problem.
What is a general allowance for receivables?
An allowance for doubtful debts that do not apply to a specific customer.
Where are the removal of irrecoverable debts and the allowance of doubtful debts shown on the financial statements?
As an expense on the Statement of Profit or Loss.
