Chapter 9 Flashcards
(24 cards)
What is a irrecoverable debt?
a debt the business believe may will never be paid
What are indications of irrecoverable debt?
bankruptcy of customer
disappearance of the customer
outright refusal to pay
Do you remove irrecoverable debt from accounts?
yes
they are no longer an asset
Where is irrecoverable debt put onto?
profit or loss
In the case of irrecoverable debt, does original sales remain in the accounts?
yes
What is the double entry requirement for irrecoverable debt?
Dr
irrecoverable debts expense
Cr
receivable
What is irrecoverable debt shown as for a company?
it is shown as an administrative expense
How do you account for a irrecoverable debt that has been recovered?
Dr
cash
Cr
Irrecoverable debt expense
Doubtful receivables
is an account that may not be fully collected, indicating a risk of non-payment.
Businesses set aside a provision for potential losses.
When should doubtful receivables be assessed?
each year to assess any potential future amounts that will not be recovered from customers
What type of calculation is tested in the exam for a doubtful receivable?
in the exam, you will be given a probability of non-payment and you should use this to calculate the required allowance
Do you remove doubtful receivables from recievable balance?
no incase the customer ends up paying
What do we set up to recognise the possible expense of not collecting the debt?
an allowance for receivables is set uo
What is an allowance for receivables?
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
What happens in allowance for receivables in terms of debit entry?
debit entry is to the irrecoverable debts account
Calculation of the allowance for receivables
it is calculated after all irrecoverable debts have been written off
What is the double entry to create an allowance for receivables?
Dr Irrecoverable debts expenses
- statement of profit or loss
Cr Allowance for Receivables
- statement of financial position
When is allowance for receivables recalculated?
at each year end
similar to accruals
What is the double entry for increase in allowance for receivables?
Dr irrecoverable debt expense
Cr allowance for receivables
What is the double entry for decrease in allowance for receivables?
Dr allowance for receivables
Cr Irrecoverable debt expense
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?
charged/credited to the statement of profit or loss
What is the double entry for if we receive cash from our credit customer and we previously has an allowance for the debt?
Dr cash
Cr receivables
What is the double entry if we write off out customers debt and we previously has an allowance for the debt?
Dr irrecoverable debts expenses
Cr receivables
What is the double entry if we write off debt as a irrecoverable and debt is subsequently recovered?
Dr cash
Cr irrecoverable debts expenses
