I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

PART D: RECORDING TRANSACTIONS AND EVENTS 

 

222

 

NEWBEGIN TOOLS  

STATEMENT OF FINANCIAL POSITION AS AT 31 JANUARY 20X6 

 

 

$      

 

$      

Assets 

 

 

Non-current assets 

 

 

 Motor 

vehicles 

 

2,000 

 

 Shop 

fittings 

 

3,000 

 

 

 

 

5,000 

Current assets 

 

 

Inventory 

 

5,450 

 

  Trade accounts receivable 

 

2,940 

 

 Cash 

 

7,510 

 

 

 

 

15,900 

 

 

 

20,900 

Equity and liabilities 

 

 

Equity 

 

 

Capital as at 1 August 20X5 

 

12,000 

 

Profit for the period 

 

8,900 

 

Less drawings 

 

 (6,000) 

 

Capital as at 31 January 20X6 

 

 

14,900 

Current liabilities  

 

 

Trade accounts payable 

 

 

  6,000 

Total equity and liabilities 

 

 

20,900 

 

The bank overdraft has now been repaid and is therefore not shown. 

 

 

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CHAPTER 12  

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  IRRECOVERABLE DEBTS AND ALLOWANCES 

 

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 

Irrecoverable debts are specific debts owed to a business which it decides are never going to be paid. 

They are written off as an expense in the statement of profit or loss. 

 

In addition to irrecoverable debts, a business may make an allowance for receivables as a prudent 

precaution to account for the fact that some receivables balances might not be collectable. 

 

An increase in the allowance for receivables is shown as an expense in the statement of profit or loss.  

 

Trade receivables in the statement of financial position are shown net of any receivables allowance. 

 

When an allowance for receivables is first set up, the whole amount is debited to the statement of profit 

or loss. 

 

In subsequent years, only the movement on the receivables allowance is debited or credited to 

irrecoverable debts expense in the statement of profit or loss. 

 

 

1 

An irrecoverable debt arises in which of the following situations? 

 

A 

A customer pays part of the account. 

 

B 

An invoice is in dispute. 

 

C 

The customer goes bankrupt. 

 

D 

The invoice is not yet due for payment. 

2 

Irrecoverable debts are $5,000. Trade receivables at the year end are $120,000. If an allowance for 

receivables equivalent to 5% of trade receivables is required, what is the entry for irrecoverable debts 

and allowance for receivables in the statement of profit or loss? 

A $5,000 

B $11,000 

C $6,000 

D $10,750 

3 

An allowance for receivables equivalent to 2% of trade receivables is required. Trade receivables at the 

period end are $200,000 and the allowable for receivables brought forward from the previous period is 

$2,000. What movement is required this year? 

4 

Fill in the blank.  

 

If a receivables allowance is increased, expenses in the statement of profit or loss are ………….  

5 

What is the double entry to record an irrecoverable debt written off?  

 

Mark the correct boxes below. 

 

Debit 

Credit 

Irrecoverable debts expense 

 

 

Trade receivables 

 

 

Allowance for receivables 

 

 

 

 

 

 

 

 

 

CHAPTER ROUNDUP 

QUICK QUIZ

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