Edexcel IGCSE Accounting: Irrecoverable debts and other receivables and other payables (4AC1) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

This set practises sections 2.6 (Irrecoverable debts) and 2.7 (Other receivables and other payables) of Topic 2 in the Pearson Edexcel International GCSE in Accounting (4AC1) specification, Issue 1, October 2016. The specification describes two papers and does not divide them into tiers. The businesses and numbers here are fictional. Currency is dollars, and the sign is left off.

Links: study guide, revision notes, 4AC1 course hub, printable checklist and the free 10-minute diagnostics.

Questions

1. Distinguish between an irrecoverable debt and a provision for irrecoverable debts. [4]

2. Explain why a business that sells goods on credit makes a provision for irrecoverable debts. [4]

3. Hallowell Supplies is told that its customer M. Obuya, who owes 275, has been declared bankrupt and cannot pay.

(a) Give the journal entry that writes off this debt. [2] (b) State the double entry that transfers this loss to the income statement at the year end. [2]

4. At the year end Wolfsden Traders has trade receivables of 36,150 in its receivables ledger, before writing off irrecoverable debts of 1,150. The provision for irrecoverable debts is to be 5% of remaining trade receivables. The provision account has a credit balance of 1,400.

(a) Calculate the provision required. [2] (b) State the entry needed in the books and the amount. [2] (c) Calculate the net trade receivables shown in the statement of financial position. [1]

5. Tarrabin Stores has a 31 March year end. During the year it writes off A. Ambrose (480) and T. Vasquez (220). After the write-offs, trade receivables are 24,300. The provision is 6% of trade receivables, and the provision account has a credit balance of 1,620 brought down.

(a) Prepare the irrecoverable debts account for the year. [3] (b) Prepare the provision for irrecoverable debts account. [3] (c) Present the trade receivables part of current assets. [2]

6. (a) Distinguish between other receivables and other payables, giving one example of each. [2] (b) Explain why a business must account for them at the year end. [2]

7. Wolfsden Traders has a 31 December year end. During the year it paid rent of 9,600 and telephone charges of 1,860. Rent of 800 was prepaid at the start of the year and 1,200 is prepaid at the end. Telephone charges of 240 were owing at the start and 310 are owing at the end.

(a) Calculate the rent and telephone expenses for the income statement. [4] (b) State how each closing balance is classified in the statement of financial position. [2]

8. Sabourin Print has a 30 April year end. Rates are paid every six months in advance. It paid 2,400 on 1 January 2027 for the half-year to 30 June 2027, 2,700 on 1 July 2027 for the half-year to 31 December 2027, and 3,000 on 1 January 2028 for the half-year to 30 June 2028. Prepare the rates account for the year ended 30 April 2028, showing the balance carried down and the income statement transfer. [6]

9. Sabourin Print sub-lets part of its premises. At the start of the year the tenant had paid 300 in advance. During the year 4,800 was received, and at the year end the tenant owes 400. Prepare the rent received account for the year, and state the amount of income for the income statement and how the closing balance is classified. [6]

10. Hallowell Supplies has a draft profit for the year of 38,500, before the adjustments below. Expenses in the draft were recorded as amounts paid.

• Trade receivables of 52,800 include 1,300 owed by S. Kowalczyk, which is irrecoverable.
• The provision for irrecoverable debts is to be 4% of remaining trade receivables. The existing provision is 2,000.
• Wages of 900 are owing.
• Insurance of 650 has been prepaid.

(a) Give the journal entry to write off the debt owed by S. Kowalczyk. [2] (b) Calculate the provision required and state the entry for the change. [3] (c) Calculate the adjusted profit for the year. [3] (d) Show the trade receivables, other receivables and other payables for the statement of financial position. [2]

Answers

1. An irrecoverable debt is a specific amount owed by a named customer that is known not to be paid [1], whereas a provision is an estimate of debts that may become irrecoverable, with no named customer [1]. An irrecoverable debt is written off, so it is removed from the customer’s account and from trade receivables [1], whereas a provision leaves the customer accounts open and is deducted from trade receivables [1]. Examiner insight: A “distinguish” answer usually earns more when each side is stated in the same sentence as its contrast, rather than as two separate definitions.

2. Prudence says profit and assets should not be overstated [1] when some customers will probably not pay, even though the business cannot yet say which ones [1]. The credit sales that cause the loss were made this year, so under the accruals (matching) concept the expected loss is charged in this year’s income statement [1], and trade receivables are shown at an amount closer to what will be collected [1]. Examiner insight: A concept that is named but not linked to its effect on profit or on receivables tends to leave the development mark unearned.

3. (a) Dr Irrecoverable debts 275 [1], Cr M. Obuya (trade receivable) 275 [1]. (b) Dr Income statement 275 [1], Cr Irrecoverable debts 275 [1]. Examiner insight: Entries are normally expected as a debit and a credit with account names and the amount, so an entry that names only one side is incomplete.

4. (a) Trade receivables after write-off: 36,150 - 1,150 = 35,000 [1]. Provision = 5% x 35,000 = 1,750 [1]. (b) Increase = 1,750 - 1,400 = 350 [1]; Dr Income statement 350, Cr Provision for irrecoverable debts 350 [1]. (c) 35,000 - 1,750 = 33,250 [1]. Examiner insight: Applying the percentage to 36,150 instead of 35,000 is a common slip; showing the subtraction first makes the method clear even if a later figure is wrong.

5. (a)

         Irrecoverable debts account
A. Ambrose      480   Income statement  700
T. Vasquez      220
                700                     700

Both customer entries [1] [1], transfer of the total 700 and balanced totals [1]. (b) Provision required: 6% x 24,300 = 1,458 [1].

        Provision for irrecoverable debts account
Income statement  162   Balance b/d     1,620
Balance c/d     1,458
                1,620                   1,620

Decrease 1,620 - 1,458 = 162 debited to the income statement [1], balanced with 1,458 carried down [1]. (c) Trade receivables 24,300 [1]; less provision (1,458) giving 22,842 [1]. Examiner insight: The decrease sits on the debit side of the provision account, and a balancing figure that fails to balance usually signals the sides were swapped.

6. (a) An other receivable is an amount owed to the business, or paid in advance by it, that is not owed by a trade customer, such as insurance paid in advance [1]; an other payable is an amount owed by the business that is not owed to a supplier of goods, such as electricity used but not yet billed [1]. (b) The accruals (matching) concept requires expenses and income to be recorded in the period they relate to [1]; otherwise profit is wrong and the statement of financial position leaves out an asset or a liability [1]. Examiner insight: A named example with each definition usually helps show the distinction is understood, not just memorised.

7. (a) Rent = 9,600 + 800 - 1,200 [1] = 9,200 [1]. Telephone = 1,860 - 240 + 310 [1] = 1,930 [1]. (b) The rent prepayment of 1,200 is an other receivable in current assets [1]; the telephone accrual of 310 is an other payable in current liabilities [1]. Examiner insight: Opening and closing balances move in opposite directions in the formula, so a quick sense check (does the accrual add to the expense?) catches many sign errors.

8. Closing prepayment: May and June 2028 are prepaid, 2/6 x 3,000 = 1,000 [1]. Opening prepayment: May and June 2027, 2/6 x 2,400 = 800 [1].

              Rates account
Balance b/d      800   Income statement  5,500
Bank           2,700   Balance c/d       1,000
Bank           3,000
               6,500                     6,500

Opening balance [1], two bank payments [1], transfer of 5,500 [1], balance carried down and totals agree [1]. Examiner insight: Working out the opening prepayment from the previous payment is the step most often left out when the year does not start on 1 January.

9.

           Rent received account
Income statement 5,500   Balance b/d (in advance)  300
                          Bank                    4,800
                          Balance c/d (owed)        400
                 5,500                            5,500

Opening 300 credit [1], bank 4,800 [1], 400 owed carried down on the credit side [1], income statement transfer [1] of 5,500 [1]. The closing 400 is an other receivable (accrued income) [1]. Examiner insight: A closing amount owed to the business is a debit balance, so it is carried down on the credit side of the account; placing it on the debit side usually leaves the totals unequal.

10. (a) Dr Irrecoverable debts 1,300 [1], Cr S. Kowalczyk 1,300 [1]. (b) Trade receivables 52,800 - 1,300 = 51,500 [1]; provision 4% x 51,500 = 2,060 [1]; increase of 60: Dr Income statement 60, Cr Provision 60 [1]. (c) 38,500 - 1,300 - 60 = 37,140 [1]; less accrued wages 900 gives 36,240 [1]; add prepaid insurance 650 gives 36,890 [1]. (d) Trade receivables 51,500 less provision 2,060 = 49,440 in current assets, with other receivables 650 [1]; other payables 900 in current liabilities [1]. Examiner insight: Working through the adjustments one at a time and stating whether each raises or lowers profit tends to be easier to follow, and to credit, than one combined calculation.

Where marks are usually lost

• Calculating the provision on the receivables figure before the write-offs.
• Recording the whole new provision instead of the change.
• Placing a decrease in the provision on the wrong side of the account.
• Mixing up the signs: adding prepayments and taking away accruals.
• Forgetting the opening balance when the account shows a brought-down amount.
• Carrying a closing amount owed to the business on the wrong side of an income account.
• Classing a prepayment under liabilities, or an accrual under assets.
• Giving a definition without an example when the command word asks for one.

Next steps

• Revise from the revision notes and re-read the study guide.
• Tick off the topic on the printable checklist and see the 4AC1 course hub.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Frequently asked questions

In what order do you calculate the provision for irrecoverable debts? First write off the known irrecoverable debts, then take the provision as a percentage of the trade receivables that remain, compare it with the opening provision and record only the difference. Calculating the provision before the write-offs gives too large a figure.

How do you calculate income earned when rent is still owed to the business? Add the amount still owed to the business at the year end to the cash received, and take away any income received in advance. The amount owed is an other receivable.

What should you include when a question asks for a definition with an example? Give the definition and a relevant example, such as electricity owed at the year end for an other payable or insurance paid in advance for an other receivable. A definition alone does not earn the example mark.

Where does a closing accrual go in an expense account? A closing accrual is carried down on the debit side so the account shows a credit balance brought down, which is a liability. It appears under other payables in current liabilities.

Official syllabus

Pearson Edexcel International GCSE in Accounting (4AC1) specification, Issue 1, October 2016, published by Pearson Education Limited – Topic 2: Introduction to bookkeeping, sections 2.6 Irrecoverable debts and 2.7 Other receivables and other payables. First assessment: June 2019.