Irrecoverable Debts And Allowances For Receivables

Question 1

What is an irrecoverable debt

Answer 1

Irrecoverable debts are debts which are considered to be uncollectable. This may be because the customer:

• has been declared bankrupt,
• has gone into liquidation, or
• has disappeared. (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 2

What is the accounting treatment for irreccoverable debt

Answer 2

Irrecoverable debts are not an asset of a business. They must therefore be written out of the accounts. This is achieved by:

Dr
Irrecoverable debts expense (statement of profit or loss)
Cr
Receivables (statement of financial position (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 3

What is the journal to recover debt which was written off

Answer 3

Journal to recover a debt previously written off: (D8f)

Dr Bank (SFP)

Cr Irrecoverable debts (SPL) (increases a profit or reduces a loss)

(LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 4

What is meant by a specigic allowance

Answer 4

• An ‘allowance’ is made against a trade receivable when there is uncertainty surrounding the recoverability of the debt and is referred to as a specific allowance. (D9d)

(LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 5

Whats a general allowance

Answer 5

• A general allowance reflects general uncertainty and is calculated after having written off irrecoverable debts and after having made any specific allowances. (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 6

What is the journal to increase an allowance

Answer 6

• Journal to increase an allowance: (D8h)

Dr Irrecoverable debts (SPL)

Cr Allowances for receivables (SFP) (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 7

Reduce an allowance by

Answer 7

reduce an allowance reverse the debit and credit entries

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 8

Expense in sopl calculation

Answer 8

Irrecoverable debts x
Less: Cash received from previously irrecoverable
Less/ add: Change in the allowance for receivables