Accounting for irrecoverable receivables

Question 1

Irrecoverable debts

Answer 1

• “Written off” as an expense in the statement of profit/loss
• Revenue figure not altered.

Question 2

Irrecoverable debts - effects on financial statements

Answer 2

PROFIT/LOSS - increase administrative expenses.

FINANCIAL POSITION - decrease current assets.

Question 3

Allowance for receivables =

Answer 3

= amount in relation to the probability of the non-recovery of debts that reduces the receivables asset to its prudent valuation in statement of financial position.

• Calculate by assessing overall “probability of payment”
• Revenue figure not altered.

Question 4

Allowance for receivables - effects on financial statements

Answer 4

PROFIT/LOSS - Increase administrative expenses

FINANCIAL POSITION - Decrease current assets

Question 5

Accounting for taxation

Answer 5

• A company pays corporation tax on its profits.
• Estimate tax liability at year-end, actual payment is often after year-end

Question 6

Accounting for taxation - effects on financial statements (if paid after year-end)

Answer 6

PROFIT/LOSS - increase income tax expense

FINANCIAL POSITION - increase current liabilities.

Question 7

Dividend =

Answer 7

Dividend = a distribution of profit to shareholders.

Question 8

If dividends are paid after year-end - effects on financial statements

Answer 8

FINANCIAL POSITION - increase current liabilities
- decrease equity.

Question 9

If dividends are paid during financial year - effects on financial statements

Answer 9

FINANCIAL POSITION - decrease current liabilities
- decrease equity