These eleven questions cover write-offs, recoveries, allowances, net receivables, ageing and a short explanation. They are original, use fictional businesses and are ordered from easier to harder. All amounts are in RM.
Cover the answer, write your working on paper, then open the answer and compare each step. Record any slip in a mistake log so you can retest it later, and use the ledger trainer when you want to check debits and credits.
Warm-up questions
1. Wira Electrical’s customer Chong owes RM480. He has moved abroad and cannot be traced. The owner decides to write off the debt. Write the double entry.
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Debit Irrecoverable debts RM480 (an expense). Credit Chong’s account RM480 (receivables fall).
Debit Irrecoverable debts 480; credit Chong 480.
2. Two months later, Chong’s family pays RM300 of the written-off amount. Show both entries.
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Step 1, reinstate the amount recovered: debit Chong RM300, credit Irrecoverable debts recovered RM300.
Step 2, record the cash: debit Bank RM300, credit Chong RM300.
Chong’s account is back to the position after the write-off, and profit rises by RM300 because the recovery is income.
3. Classify each item as a write-off or an allowance adjustment: (a) a customer’s business has been liquidated and owes RM900; (b) the allowance is set at 4% of closing receivables; (c) the allowance account is reduced because receivables have fallen.
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(a) Write-off: a named debt will not be paid. (b) Allowance adjustment: a policy applied to receivables. (c) Allowance adjustment: a decrease in the estimate.
Core questions
4. At year end, trade receivables are RM15,000. The policy is an allowance of 6% of receivables. There was no allowance before. Calculate the allowance and the charge to profit.
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6% of RM15,000 = RM900. Existing allowance is nil, so the charge is RM900. Debit Irrecoverable debts RM900, credit Allowance for irrecoverable debts RM900.
Check: 15,000 × 6 ÷ 100 = 900.
5. The next year, receivables are RM12,500 with the same 6% policy and no write-offs. The existing allowance is RM900. What adjustment is needed?
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New allowance = 6% of RM12,500 = RM750. Existing RM900, so the allowance is reduced by RM150.
Debit Allowance RM150, credit Irrecoverable debts RM150. Profit rises by RM150.
Check: 900 − 750 = 150.
6. Harapan Trading has trade receivables of RM28,000 before adjustments. A customer owing RM700 is to be written off. The policy is 4% of remaining receivables and the existing allowance is RM900. Calculate the allowance adjustment and the total irrecoverable debts expense.
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Remaining receivables = RM28,000 − RM700 = RM27,300.
New allowance = 4% of RM27,300 = RM1,092.
Increase = RM1,092 − RM900 = RM192.
Total expense = RM700 write-off + RM192 allowance increase = RM892.
Check: 27,300 × 4 ÷ 100 = 1,092, and 700 + 192 = 892.
7. Using the figures in question 6, show trade receivables in the current assets section of the statement of financial position.
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| Current assets | RM | RM |
|---|---|---|
| Trade receivables | 27,300 | |
| Less allowance for irrecoverable debts | (1,092) | 26,208 |
Net receivables = RM27,300 − RM1,092 = RM26,208. The RM700 write-off is not deducted again.
8. The following year Harapan Trading has receivables of RM24,000, no write-offs and the same 4% policy. Show the allowance account entry and the new net receivables.
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New allowance = 4% of RM24,000 = RM960. Existing = RM1,092. Decrease = RM1,092 − RM960 = RM132.
Debit Allowance RM132, credit Irrecoverable debts RM132.
Net receivables = RM24,000 − RM960 = RM23,040.
Harder questions
9. A student calculated Harapan Trading’s allowance for question 6 as 4% of RM28,000 = RM1,120, then credited it without writing off the RM700 customer. Find two errors and the difference in the allowance figure.
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Error 1: the RM700 debt was not written off, so the receivables are overstated by RM700 and profit is overstated by RM700.
Error 2: the allowance was based on the unadjusted RM28,000 instead of RM27,300.
The allowance figure is RM1,120 against the correct RM1,092, so it is overstated by RM28.
Check: 1,120 − 1,092 = 28.
10. Selatan Mart has an existing allowance of RM900. The ageing at year end is: up to 30 days RM15,000 at 1%; 31 to 60 days RM5,000 at 10%; over 60 days RM2,000 at 30%. Calculate the new allowance, the adjustment and the net receivables.
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Up to 30 days: RM15,000 × 1% = RM150.
31 to 60 days: RM5,000 × 10% = RM500.
Over 60 days: RM2,000 × 30% = RM600.
Allowance = 150 + 500 + 600 = RM1,250.
Increase = RM1,250 − RM900 = RM350.
Total receivables = 15,000 + 5,000 + 2,000 = RM22,000. Net receivables = RM22,000 − RM1,250 = RM20,750.
11. The owner of Selatan Mart says: “The allowance is money we put aside in the bank for customers who do not pay.” Explain in two or three sentences why this is not correct, and why older balances carry a higher percentage.
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The allowance is an accounting estimate and no cash moves, so the bank balance is unchanged. The entry reduces profit and reduces the net value shown for receivables.
Older balances carry a higher percentage because the longer a debt is unpaid, the less likely it is to be collected. Prudence means recording the expected loss rather than overstating assets.
If you got these wrong
Match the type of error to the lesson that fixes it.
| What went wrong | Questions | Go to |
|---|---|---|
| Wrong accounts or sides for a write-off or recovery | 1, 2 | Record an irrecoverable amount |
| Wrong base, wrong percentage, or whole figure instead of change | 4, 5, 6, 8 | Calculate an allowance from supplied policy |
| Mixed up write-off and allowance, or wrong order | 3, 6, 9 | Allowance adjustment versus write-off |
| Net figure or statement layout | 7, 8, 10 | Show a net receivables figure |
| Ageing percentages or the written explanation | 10, 11 | Explain why collectability affects an estimate |
The percentage-base explorer is useful when the slip is choosing which balance to take the percentage of. For the full route, start again from the receivables and allowances module.
If a pattern repeats across several questions, our teachers can work through your papers with you in online one-to-one Accounting tuition.