At 1 January 20X5 a company had an allowance for receivables of $18,000 At 31 December 20X5 the company's trade receivables were $458,000. It was decided: (a) To write off debts totalling $28,000 as irrecoverable (b) To adjust the allowance for receivables to the equivalent of 5% of the remaining receivables based on past experience What figure should appear in the company's statement of profit or loss for the total of debts written off as irrecoverable and the movement in the allowance for receivables for the year ended 31 December 20X5?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
At 1 January 20X5 a company had an allowance for receivables of $18,000
At 31 December 20X5 the company's trade receivables were $458,000.
It was decided:
(a) To write off debts totalling $28,000 as irrecoverable
(b) To adjust the allowance for receivables to the equivalent of 5% of the remaining receivables
based on past experience
What figure should appear in the company's statement of profit or loss for the total of debts written off
as irrecoverable and the movement in the allowance for receivables for the year ended 31 December
20X5?
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