How to change the allowance for doubtful debts
The allowance is worked out afresh each year end. Only the change from last year is posted, as an increase or a decrease.
Task 1Work out the allowance needed now4 questions
The allowance account keeps its balance from one year to the next. At each year end, work out the allowance needed now and compare it with the balance brought forward.
| Item | Amount |
|---|---|
| Allowance brought forward from Year 1 | 1,280.00 |
| Trade receivables, after this year's write-offs | 31,500.00 |
| Owed by Summit Sports, included above | 1,500.00 |
Summit Sports is in difficulty, so a specific allowance is made for the whole of its debt. The general allowance is still 2% of the remaining receivables. Hill Street Bikes paid in full during the year, so it needs no allowance now.
Task 2Only the change is posted3 questions
Task 3When the allowance falls3 questions