Adjustments For Irrecoverable Debts

Question 2

What is an Irecoverable Debt

Answer 2

An Irecoverable debt is one whcih a recievable probably will not pay the amount that is owed and the assets and capital of the business would be overstated if the debit balance was left in their account.

Question 3

How are Irrecoverable debts recorded in the Income Statement

Answer 3

Irrecoverable debts are a business expense and must not be included in trade receivables on the Statement of Financial Position

Question 4

What is a Recovery Of an Irrecoverable Debts

Answer 4

Sometimes a customer, whose debt was written off as a Irrecoverable debt some time earlier, may later be in a position to settle the outstanding debt.

Question 5

How are Irrecoverable debts Recovered recorded in the Income Statement

Answer 5

Adds to Gross Profit

Question 6

How do you Work out the Provision of a debt

Answer 6

Calculate 1 % and times by the % Given in Question

Question 7

How do you Treat Provison of Doubtfull debts in the Statement of Financial Position

Answer 7

The percentage is deducted from trade receivables on the Statement of Financial Position.

Question 8

How are Provision for doubtfull debts treated in the Income Statement

Answer 8

• An increase in the provision is an expense
• A decrease in the provision is income (add to Gross Profit

Question 9

An Example Of Provision Layout

Answer 9

Receivables 31st August 2023 £ 15 200 x 2% = 304

Provision brought down (280)
304-280=24

Increase in provision for doubtful debts (expense) = 24

Therefore goes in the Expense Section