Irrecoverable Debts and Allowance for Receivables

A debt that a business has decided will not be paid. The whole amount of the receivable is written off as an expense in the statement of profit or loss.

The process of removing an irrecoverable debt from the company's records by recording it as an expense.

When a customer makes a payment that is not honored by its bank, the company reinstates the debt. This means the customer still owes the money.

A provision in the balance sheet that reflects the estimated amount of receivables that are likely to be uncollectible. This helps to ensure that the reported amount of receivables is accurate.

Accounting standards require businesses to record a provision (allowance) for doubtful debts in the current year to reflect potential future amounts that may not be collected from credit customers.

When a business receives cash in respect of a debt that was previously written off as irrecoverable, the journal entry involves debiting cash at bank and crediting the irrecoverable debt expense. This reverses the initial write-off.

When recording a write-off of an irrecoverable debt, the journal entry involves debiting irrecoverable debts expense and crediting trade receivables.

The final step in the accounting process for irrecoverable debts where the amount is recognized as an expense. It impacts the statement of profit or loss.

The cost of uncollectible receivables recognized in the period. It's an expense reflecting the portion of receivables that are no longer considered recoverable.

When a business writes off an accounts receivable, it removes the amount from its books.

The process of reversing a previous entry when an allowance for receivables is reduced. It's used to adjust the allowance to reflect a more accurate estimate of future losses.

The process of setting up an allowance for receivables to reflect the anticipated non-recovery of debts. This reduces the receivables asset to its prudent valuation.

The accounting entries related to the allowance for receivables, such as the initial setup or the reversal of the allowance.

The process of identifying and recording accounts receivable that are unlikely to be collected. It's a step in managing bad debt risk.

The total amount of money owed to a business by its customers. It's a crucial part of the balance sheet.

The value of accounts receivable reported on the balance sheet after subtracting the allowance for receivables. It's a more accurate representation of the amount likely to be collected.

The accounting treatment for bad debt expenses and related adjustments. It ensures that the financial statements accurately reflect the true economic health of a company.

The amount of money a business has in its bank account at a specific time.

The total amount of money the owner invested in the business at its start.

Money borrowed by the business from a lender.

Assets that will be used for a long period of time (more than a year).

The amount of money a business owes to its suppliers for goods or services purchased on credit.

The cost of goods or services sold to customers.

The total amount of money received from selling goods or services.

The amount of money owed to a business by its customers for goods or services purchased on credit.

An account used to record the expense of irrecoverable debts. This account is debited when a debt is written off or when the allowance for receivables is adjusted.

The process of adjusting the allowance for receivables based on current expectations of uncollectible debts. The adjustment may result in an increase or decrease to the allowance, affecting the irrecoverable debts expense.

The process of making entries in a trial balance to account for adjustments related to irrecoverable debts and the allowance for receivables. This ensures the financial statements reflect the correct balances.

The impact on the statement of profit or loss when irrecoverable debts are written off. This expense reduces the profitability of the business.

The balance on the Irrecoverable Debts Expense Account is transferred to this account at the end of the accounting period, like all other expense accounts.

The process of updating the trade receivables balance and the corresponding customer's personal account in the receivables ledger when a debt is written off. This ensures consistent records.

An entry in the accounting system which removes an irrecoverable debt from the company's records. This involves debiting the Irrecoverable Debts Expense account and crediting the Trade Receivables account.

The adjustment for irrecoverable debts is the difference between the desired allowance for receivables and the current allowance. In this case, the desired allowance is CU800, and the current allowance is CU2,000, resulting in a decrease of CU1,200.

The net charge for irrecoverable debts is calculated by adding the irrecoverable debts written off during the period and subtracting the recovered debts. The difference is then adjusted for the change in the allowance. In this case, the net charge is CU3,200 (written off) - CU150 (recovered) + CU720 (change in allowance) = CU720.

The profit before accounting for the allowance adjustment and debt recovery is calculated by adding the decrease in the allowance and the recovered debt to the reported profit. In this case, the profit before adjustment is CU5,000 (reported profit) + CU600 (decrease in allowance) + CU300 (recovered debt) = CU5,900.

The irrecoverable debts expense is calculated by reducing the allowance for receivables by the desired amount. In this case, the desired allowance is CU7,000 (10% of CU70,000) and the balance at the beginning of the period was CU5,000. So, the expense is CU7,000 - CU5,000 = CU2,000. However, the irrecoverable debt expense already incurred is CU500. So, the final expense is CU2,000 + CU500 = CU2,450.

The irrecoverable debts expense is calculated by considering the change in the allowance, the irrecoverable debts written off during the period, and any recovered debts. The desired allowance increased by CU500 (from CU1,000 to CU1,500), and the written off debts were CU2,000. Therefore, the total expense is CU500 + CU2,000 = CU2,500.