Trade Receivables

What are some reasons for a debt to be uncollectible?

• Business moved to a different location

• Business ceased its operations

• The sole trader of the business had passed on

• The business had filed for bankruptcy

• The business issued dishonoured cheques

Identify the accounting theory that explains a business would create an allowance for impairment of trade receivables

• Going concern theory

• Monetary theory

• Consistency theory

• Prudence theory

What is the double entry for writing off a debt?

• Debit: Trade receivable

  Credit: Impairment loss on trade receivables

• Debit Impairment loss on trade receivables

  Credit: Trade receivable

• Debit: Trade receivable

  Credit: Allowance for impairment of trade receivables

• Debit: Allowance for impairment of trade receivables

  Credit: Trade receivable

Beginning allowance = $1 200

The business estimates that $900 may be uncollectible.

What is the adjustment entry?

• Debit: Impairment loss on trade receivables $300

  Credit: Allowance for impairment of trade receivables $300

• Debit: Impairment loss on trade receivables $900

  Credit: Allowance for impairment of trade receivables $900

• Debit: Allowance for impairment of trade receivables $300

  Credit: Impairment loss on trade receivables $300

• Debit: Allowance for impairment of trade receivables $900

  Credit: Impairment loss on trade receivables $900

Beginning allowance = $850

The business estimates that $1 100 may be uncollectible.

What is the adjustment entry?

• Debit: Impairment loss on trade receivables $250

  Credit: Allowance for impairment of trade receivables $250

• Debit: Impairment loss on trade receivables $1100

  Credit: Allowance for impairment of trade receivables $1100

• Debit: Allowance for impairment of trade receivables $250

  Credit: Impairment loss on trade receivables $250

• Debit: Allowance for impairment of trade receivables $1100

  Credit: Impairment loss on trade receivables $1100

Do you have any questions for this topic?

Please rate your understanding of this topic

• I understand a bit

• I understand most of it

• I understand all of it, just need to practise more