PRACTICE TOPIC
Bad Debts
Practice Bad Debts with 11 accounting challenges on Accountely — instant IAS/IFRS-compliant scored feedback on every submission.
What bad debts covers
Bad debts are receivables the business no longer expects to collect. Under the allowance approach the expected loss is estimated and recognised in the period the revenue was earned, so the receivable is carried at the amount realistically recoverable. Writing a specific balance off later reduces both the receivable and the allowance, with no further effect on profit.
Challenges here cover estimating the allowance, recording the expense, writing off specific balances, and accounting for recoveries.
Where marks are usually lost
- Taking an expense again on write-off when the allowance already covered it.
- Confusing the allowance balance required with the expense for the period — the expense is the movement needed to reach the required balance.
- Forgetting to reinstate the receivable before recording cash on a recovered debt.
Further readingIFRS 9: expected credit losses
11 Bad Debts practice challenges
TitleTypeDifficulty
Coldharbour Tiles - Writing Off and Recovering a Bad Debt Multi-StatementeasyCrestline Tools - Direct Write-Off Method (US GAAP) US GAAPJournaleasyBradford Supply Co. - Aging of Receivables: Adjustment, Write-off and Recovery JournalmediumRiverton Supplies - Accounting for Bad Debts: Write-offs, Recovery and the Year-end Adjustment Multi-StatementmediumKingsley Wholesale - Expected Credit Losses With a Provision Matrix (IFRS 9) Multi-StatementhardSunbury Office Supply - Aging With a Debit Allowance Balance Multi-StatementmediumRiverside Wholesale - Allowance for Doubtful Accounts (US GAAP) US GAAPJournalmediumCase Study: Alder & Finch Ltd - Year-End Cash and Receivables: Bank Reconciliation, Write-Off and Expected Credit Losses Multi-StatementhardFairhaven Trading - Financial Statements with an Allowance for Doubtful Accounts Multi-StatementmediumWhitfield Retailers — Accounts Receivable & Sales Revenue (T-Accounts) LedgerhardDovetail Services - Change in Estimate and Correction of Prior-period Errors Multi-Statementhard