Question
Coldharbour Tiles uses the allowance method. On March 3, 2026 its ledger shows Accounts Receivable of $90,000 and an Allowance for Doubtful Accounts of $5,000 (credit).
- Mar 3 — a customer, Dalton Builders, goes into liquidation owing $4,000. Coldharbour writes the account off.
- Aug 19 — against expectations, the liquidator pays Coldharbour $1,500 of the amount written off. No more is expected.
Required:
- Net Receivables — the carrying amount of receivables (receivables less the allowance) immediately after the March 3 write-off.
- Journal Entries — the write-off, and the recovery on August 19 (reinstate the account, then record the cash). Use Allowance for Doubtful Accounts, Accounts Receivable and Cash.
- Effect of the Write-off — the effect of the March 3 entry on the financial statements.
Statements in this challenge
- Net ReceivablesNumeric Answer
- Journal EntriesJournal Entry
- Effect of the Write-offStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 9 — expected credit losses
The allowance is an estimate of receivables that will not be collected, recognised before any specific account is known to have failed. Keep the two mechanics apart: setting or adjusting the allowance affects profit, whereas writing a specific account off against an existing allowance does not.
Common mistakes
- Recording the full estimate as the expense when the allowance already carries a balance — under the balance-sheet approach the entry is the movement needed, not the target.
- Taking a write-off of a specific debt to expense a second time when an allowance already exists.
- Reducing the receivable directly and leaving no allowance account, which loses the gross amount.
Further readingIFRS 9: expected credit losses