Page 162 - F3 -FA Integrated Workbook STUDENT 2018-19
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Chapter 11
Allowance for receivables
3.1 Estimating the allowance for receivables
Whilst some debts may be regarded as definitely irrecoverable, others may only be
doubtful. An allowance for receivables is then established to account for the
receivable at its estimated recoverable amount.
The accounting entries required to create an allowance for receivables are:
Debit Irrecoverable debts expense
Credit Allowance for receivables
An allowance should only be accounted for when there is evidence that the full
amount due may not be recovered, but it is not yet regarded as irrecoverable. This
may comprise specific amounts or debts where the customer is known to be in
financial difficulties, or is disputing an invoice, or is refusing to pay for some other
reason (bad service for example), and therefore the amount owing may not be fully
recovered. The allowance for such a debt is sometimes referred to as a specific
allowance.
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