Chapter 9 Flashcards

1
Q

What is a irrecoverable debt?

A

a debt the business believe may will never be paid

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2
Q

What are indications of irrecoverable debt?

A

bankruptcy of customer

disappearance of the customer

outright refusal to pay

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3
Q

Do you remove irrecoverable debt from accounts?

A

yes
they are no longer an asset

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4
Q

Where is irrecoverable debt put onto?

A

profit or loss

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5
Q

In the case of irrecoverable debt, does original sales remain in the accounts?

A

yes

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6
Q

What is the double entry requirement for irrecoverable debt?

A

Dr
irrecoverable debts expense

Cr
receivable

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7
Q

What is irrecoverable debt shown as for a company?

A

it is shown as an administrative expense

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8
Q

How do you account for a irrecoverable debt that has been recovered?

A

Dr
cash

Cr
Irrecoverable debt expense

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9
Q

Doubtful receivables

A

is an account that may not be fully collected, indicating a risk of non-payment.
Businesses set aside a provision for potential losses.

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10
Q

When should doubtful receivables be assessed?

A

each year to assess any potential future amounts that will not be recovered from customers

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11
Q

What type of calculation is tested in the exam for a doubtful receivable?

A

in the exam, you will be given a probability of non-payment and you should use this to calculate the required allowance

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12
Q

Do you remove doubtful receivables from recievable balance?

A

no incase the customer ends up paying

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13
Q

What do we set up to recognise the possible expense of not collecting the debt?

A

an allowance for receivables is set uo

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14
Q

What is an allowance for receivables?

A

a credit balance which is netted off against receivables in the statement of financial position to give a net figure of receivables that are probably recoverable

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15
Q

What happens in allowance for receivables in terms of debit entry?

A

debit entry is to the irrecoverable debts account

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16
Q

Calculation of the allowance for receivables

A

it is calculated after all irrecoverable debts have been written off

17
Q

What is the double entry to create an allowance for receivables?

A

Dr Irrecoverable debts expenses
- statement of profit or loss

Cr Allowance for Receivables
- statement of financial position

18
Q

When is allowance for receivables recalculated?

A

at each year end
similar to accruals

19
Q

What is the double entry for increase in allowance for receivables?

A

Dr irrecoverable debt expense

Cr allowance for receivables

20
Q

What is the double entry for decrease in allowance for receivables?

A

Dr allowance for receivables

Cr Irrecoverable debt expense

21
Q

Allowance for receivables - What happens if there is any difference between the allowance at the start of the year and the allowance at the end of the year?

A

charged/credited to the statement of profit or loss

22
Q

What is the double entry for if we receive cash from our credit customer and we previously has an allowance for the debt?

A

Dr cash

Cr receivables

23
Q

What is the double entry if we write off out customers debt and we previously has an allowance for the debt?

A

Dr irrecoverable debts expenses

Cr receivables

24
Q

What is the double entry if we write off debt as a irrecoverable and debt is subsequently recovered?

A

Dr cash

Cr irrecoverable debts expenses