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1、F3 Chapter 15 Irrecoverable Debts and AllowanceProvided byAcademy of Professional Accounting (APA)Professional Accounting EducationCopyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台ACCA F3Financial Accounting (FA)财务会计第十五讲ACCA Lecturer: Carrie NICopyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 2D8: Irrecoverable
2、 Debts and Allowances? Irrecoverable debts? Allowances for receivablesCopyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 3Irrecoverable DebtsIntroductionIdeally a business wants to receive money from its customers as quickly as possible, but delay paying its suppliers for as along as possible. This can lea
3、d to problems.Most businesses aim to control such problems by means of credit control.? Customer will be given a credit limit, which cannot be exceeded.? Another tool in credit control is the age receivables analysis.Copyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 4Irrecoverable DebtsIntroductionIrrecov
4、erable 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.Copyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 5Irrecoverable DebtsWriting off irrecoverable debts? When a sale on credit is made to a cu
5、stomer:? Dr Trade receivables? Cr Sales? When cash is received:? Dr Cash account? Cr Trade receivables? But if the customer goes bankrupt and then cant pay, the irrecoverable debt should be written off:? Dr Irrecoverable debts expense (SOPL)? Cr Trade receivables (SOFP)Copyright ? ACCAACCAspace 中国AC
6、CA特许公认会计师教育平台 6Irrecoverable DebtsLearning exampleFight & Co. has trade receivables at 31 December 20x7 of $65,000. A review of customer files indicates that two customers, Ali and Tyson, which owe $7,000 and $8,000 respectively, have gone bankrupt and their debts are considered irrecoverable.Re
7、quireda) Calculate the balance c/d on the trade receivables account at the end of the year.b) Calculate the irrecoverable debt expense shown in the statement of profit or loss.Copyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 7Irrecoverable DebtsEffect in subsequent periodsIf an irrecoverable debt previou
8、sly written off is recovered, the accounting treatment from the original write-off is reverse.Copyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 8Irrecoverable DebtsAccounting treatment? Cash received? Dr Cash? Cr Trade receivables? Reverse original write off? Dr Trade receivables? Cr Irrecoverable debt ex
9、penseOR Short method? Dr Cash? Cr Irrecoverable debt expenseCopyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 9Allowance for ReceivablesDoubtful debts? A doubtful debt is a debt which is possibly irrecoverable.? In this situation, a provision, known as an allowance for receivables, is made against the dou
10、btful debt.? Allowance for receivables. An amount in relation to receivables that reduces the receivables asset to its prudent valuation in the statement of financial position. It is offset against trade receivables, which are shown at the net amount.? Allowance for receivables may be specific (an a
11、llowance against a particular receivables) or simply a percentage allowance based on past experience of irrecoverable debts, which is known as a “general allowance”.Copyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 10Allowance for ReceivablesTypes of allowancea) Specific: provided against a particular/nam
12、ed individual customer.b) General: percentage applied to total trade receivables after:I. Writing off irrecoverable debts;II. Deducting full balance of any customers for which specific allowance has been created.Copyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 11Allowance for ReceivablesAccounting treatm
13、ent? Dr Irrecoverable debts expense (P/L)? Cr Allowance for receivables (SOFP)On SOFP:Receivables XAllowance (X)XCopyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 12Allowance for ReceivablesLearning exampleA business trade receivables account showed a year end balance of $47,440. It was decided that amoun
14、ts totaling $340 should be written off as irrecoverable, a specific allowance was to be made against an amount of $400 due from Dodgy Co., a customer, and a general allowance of 2% was to be made against remaining debts.Requireda) Calculate the allowance for receivables shown in the statement of fin
15、ancial position.b) Calculate the irrecoverable debts expense shown in the statement of profit or loss.Copyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 13Allowance for ReceivablesEffect in subsequent periodsDoubtful debts general allowanceAllowance is usually changed at the end of each period to reflect t
16、he change in value of total trade receivables.Increase/decrease opening allowance to arrive at required closing allowance:? Increase:? Dr Irrecoverable debts expense? Cr Allowance for receivables? Decrease:? Dr Allowance for receivables? Cr Irrecoverable debts expenseCopyright ? ACCAACCAspace 中国ACCA
17、特许公认会计师教育平台 14Allowance for ReceivablesEffect in subsequent periodsDoubtful debts specific allowance least year, customer pays outstanding amounts this year. A credit entry for the cash is made to the trade receivables account because the debt is still included in the total trade receivables figure.
18、 The allowance is then reversed as it is no longer needed.Account treatment? Record the cash received? Dr Cash (SOFP)? Cr Trade receivables (SOFP)? Remove allowance? Dr Allowance for receivables (SOFP)? Cr Irrecoverable debts expense (P/L)Copyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 15Allowance for R
19、eceivablesEffect in subsequent periodsLearning exampleA business trade receivables account showed a year end balance of $47,440. It was decided that amounts totaling $340 should be written off as irrecoverable, a specific allowance was to be made against an amount of $400 due from Dodgy Co., a custo
20、mer, and a general allowance of 2% was to be made against remaining debts.RequiredShow the accounting treatment for the business if, having made a specific allowance (see learning example), during the next year Dodgy Co. repays his debt of $400 to the business in cash? Copyright ? ACCAACCAspace 中国AC
21、CA特许公认会计师教育平台 16Allowance for ReceivablesEffect in subsequent periodsDoubtful debts - specific allowance last year, goes bad this yearThis debt is no longer doubtful, but definitely bad. It should therefore be removed from the trade receivables and the allowance for receivables accounts.? Dr Allowan
22、ce for receivables (SOFP)? Cr Trade Receivables (SOFP)Copyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 17Allowance for ReceivablesLearning exampleAt 31 December 20x7, Brionys receivables account in the nominal ledger shows a balance of $14,670. She wishes to write off Gabys debt of $1,000 and make an all
23、owance of 50% against Johns debt of $440 and 75% against Helens debt of $240. She maintains a 4% general allowance.The balance brought forward on the allowance for receivables account was $1,250.What amount is charged to Brionys statement of profit or loss in respect of the above?A. $1,920 B. $1,330 C. $680 D. $737Copyright ? ACCAACCAspace 中国ACCA特许公认会计师教育平台 18Summary Provided byAcademy of Professional Accounting (APA)Professional Accounting Education