Allowance for doubtful debts/debt recovery

GrievousAngelGrievousAngel Posts: 3Registered
edited June 26 in Advanced Bookkeeping
Hi can anyone explain the answer to me as I'm a little confused. I understand that to increase the allowance from £433 to £605 you just need to add £172 by crediting allowance for doubtful debts and debiting doubtful debt expense but it's the £56 specific debt that they say has been recovered that's confusing me. If it's been recovered wouldn't the allowance for doubtful debts be reduced from £433 to £377 so to then make a £605 allowance £228 rather than £172 would need to be added? Why are they leaving the £56 in as part of the later £605 allowance if it's been recovered?

I hope someone can help.

Thank you.


Comments

  • mcchocmcchoc East YorkshirePosts: 39Registered, Tutor
    Hard to read the photo, but I think it's the word 'subsequently' that's key.
    Remember, you are taking a snapshot of the business at midnight on April 1, and at that moment, that £56 had yet to be recovered.
  • mcchocmcchoc East YorkshirePosts: 39Registered, Tutor
    Another thought. When that dodgy debtor pays, we Debit the bank and Credit P&L, so the Allowance account isn't affected.
  • GrievousAngelGrievousAngel Posts: 3Registered
    Thank you so much for for your reply. I'm still a little confused. It's on 31 March X5 that they're suggesting the £56 has been paid by and their explanation in the answer is confusing me as it says 'the balance b/d in respect of the debt which was recovered is no longer required'. I'm studying distance learning and my notes say if a specific allowance is recovered to 1. Post cash received - Dr Cash Cr Sales Ledger Control but says now that the customer has paid we no longer need the allowance we made previously so we have to reverse that entry by Dr Allowance for Doubtful debts (SFP) and Cr Bad and doubtful debt expense (P/L). If we debit the allowance for doubtful debts then the £56 is removed from the original allowance taking £56 off the £433?
  • GrievousAngelGrievousAngel Posts: 3Registered
    Mrchoc, would you mind if I ask you. It's the study note below from my First Intuition study guide that's thrown me. It says that if a specific allowance is recovered we need to Debit the allowance for doubtful debts a/c on SFP.




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