ACCA Applied Knowledge · Financial Accounting · Receivables and payables
Which statement about the allowance for receivables in the statement of financial position is correct?
The allowance for receivables is deducted from gross trade receivables within current assets, giving a net figure that reflects the amount expected to be collected. It is not a liability or an equity reserve, and it is never added to receivables.
- AIt is shown as a current liability
- BIt is deducted from trade receivables within current assetsCorrect
- CIt is shown within equity as a reserve
- DIt is added to trade receivables to give the net figure
Explanation
The allowance is a contra-asset, deducted from gross trade receivables to show the amount expected to be collected. It is not a liability or a reserve, and adding it would overstate assets.
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