Chp 10: Trade receivables _ Imp loss on TR Flashcards
What is the nature of Allowance for impairment of trade receivables?
Cr nature
State the journal entry when business write off debts.
Trade receivables $1000
1 Jan: Allowance for impairment of trade receivable $60
On 31 Dec, business estimated that 10% of trade receivables may not be collectible.
State the journal entry and the AMOUNT.
Trade receivables $1000
1 Jan: Allowance for impairment of trade receivable $180
On 31 Dec, business estimated that 10% of trade receivables may not be collectible.
State the journal entry and the AMOUNT. HINT (This is a REVERSAL)
Trade receivables $1000
1 Jan: Allowance for impairment of trade receivable $180
On 31 Dec, business estimated that 10% of trade receivables may not be collectible. (10% x 1000 = $100)
How much is to be shown in the statement of financial PERFORMANCE?
Less expenses
(Reversal) Imp loss on trade receivable (80)
Trade receivables $1000
1 Jan: Allowance for impairment of trade receivable $180
On 31 Dec, business estimated that 10% of trade receivables may not be collectible. (10% X $1 000)
How would it be shown in the statement of financial POSITION as at 31 Dec?
Current Asset
Trade receivable 1 000
Less Allowance for impairment of trade rec 100
900
Describe transaction on Jun 30
Business wrote off $99 worth of debts owed by Hao.
Describe transaction on Dec 31
Business reviewed its trade receivables and reduced the amount of allowance for impairment of trade receivables by $140 to $10
Dr ?
Cr Impairment loss on Trade receivables $140
Dr Allowance for impairment of trade receivables
Describe the transaction for $140 (on the CR column)
Business reviewed its trade receivables and reduced the amount of allowance for impairment of trade receivables by $140
Describe the last transaction on 31 Dec.
Reversal of Impairment loss on trade receivables amount to $140 and is transferred to income summary.
Explain using accounting theory why business must provide for impairment loss on trade receivables?
Matching theory states that expenses incurred must be matched against income earned in the same period to determine the profit for that period.
So the impairment loss on trade receivables is matched against the credit sales.
Explain using accounting theory why business must provide for allowance for impairment of trade receivables?
Prudence theory states that the accounting treatment chosen should be the one that least overstates assets and profits and least understates liabilities and losses.
So business need to estimate the amount of debts likely to be uncollectible and deduct from the trade receivables, so that the asset is not overstated.
State the effect of INCREASE in allowance on profit and trade receivables.
(Hint: think of the journal entry)
Dr Imp loss on TR
Cr Allowance for imp of TR
-→ MORE expenses -→ reduces profit
–) Trade receivable -→ reduced (as higher allowance)
