Syllabus Edition
First teaching 2025
First exams 2027
Adjustments for Allowances for Irrecoverable Debts (Cambridge (CIE) IGCSE Accounting): Revision Note
Exam code: 0452 & 0985
Adjustments for allowances for irrecoverable debts
How do I record the allowances for irrecoverable debts on the financial statements?
Calculate the allowance for irrecoverable debts at the end of the current year
See the revision note Allowance for Irrecoverable Debts for more information
Calculate the difference between:
The allowance for irrecoverable debts at the start of the year
This value will be on the trial balance
And the allowance for irrecoverable debts at the end of the year
This is the value that you need to calculate
The difference is the value that is stated on the statement of profit or loss
If the allowance for irrecoverable debts increases, the increase is listed with the expenses
Label it allowance for irrecoverable debts
If the allowance for irrecoverable debts decreases, the decrease is listed with the other income
Label it reduction in allowance for irrecoverable debts
Record the new balance for the allowance for irrecoverable debts on the statement of financial position
List it underneath trade receivables in the current assets section
Subtract the allowance from the value for trade receivables
Worked Example
Clara starts trading on 1 January 2022. At 31 December 2022, the trade receivables balance is $24 000. Clara sets up an allowance for irrecoverable debts which is to be maintained at 4% of trade receivables.
(a) Prepare an extract from the statement of profit or loss for the year ended 31 December 2022 and an extract of the current assets section from the statement of financial position at 31 December 2022.
(b) At 31 December 2023, the trade receivables balance is $22 000. Prepare an extract from the statement of profit or loss for the year ended 31 December 2023.
Answer:
(a)
Calculate the allowance for irrecoverable debts
4% × $24 000 = $960
This is an increase from $0
It will appear as an expense on the statement of profit or loss
Clara Statement of Profit or Loss (extract) for the year ended 31 December 2022 | |
$ | |
Expenses | |
Allowance for irrecoverable debts | 960 |
Clara Statement of Financial Position (extract) at 31 December 2022 | ||
Current Assets | $ | $ |
Trade receivables | 24 000 | |
Less: allowance for irrecoverable debts | 960 | 23 040 |
(b)
Calculate the new allowance for irrecoverable debts
4% × $22 000 = $880
Calculate the difference from the previous allowance for irrecoverable debts
$960 - $880 = $80
This is a decrease
It will appear as other income on the statement of profit or loss
Clara Statement of Profit or Loss (extract) for the year ended 31 December 2023 | |
$ | |
Other income | |
Reduction in allowance for irrecoverable debts | 80 |
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