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ACCA Applied Knowledge · Financial Accounting · Receivables and payables

Under IFRS, which statement about an allowance for receivables is correct?

Movements in the allowance for receivables are charged or credited to profit or loss, and the allowance itself is deducted from trade receivables in the statement of financial position. It is a contra-asset, not a liability, and an increase is credited to the allowance account.

  1. AChanges in the allowance are recorded in the statement of profit or loss, and the allowance is deducted from receivables in the statement of financial positionCorrect
  2. BThe allowance is shown as a liability in the statement of financial position
  3. CAn increase in the allowance is debited to the allowance account
  4. DThe allowance is reduced when a specific debt is written off, with the write-off debited to the expense

Explanation

The allowance is a contra-asset deducted from receivables, and movements go through profit or loss. An increase is credited to the allowance account, so C is wrong. B is wrong because it is not a liability.

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