Accounting Online Program Certification Practice Test

At the year end, what was the balance deemed irrecoverable in the accounts receivable?

1. £8,200

2. £10,200

3. £12,000

4. £14,000

The correct answer is: £10,200

The balance deemed irrecoverable in accounts receivable represents the amount that a company anticipates will not be collectible from its customers. This figure is crucial for presenting an accurate financial position, as it impacts the net accounts receivable on the balance sheet and is also reflected in the income statement as an expense, typically known as bad debt expense. Choosing the amount of £10,200 indicates an assessment based on an evaluation of the overall accounts receivable, considering factors such as customer payment histories, market conditions, and any specific accounts facing significant collection issues. This assessment is typically performed during the year-end closing process when the financial statements are prepared, ensuring that the reported assets reflect realistic expectations of cash inflow. In contrast, the other amounts of £8,200, £12,000, and £14,000 did not accurately represent the assessment for irrecoverable amounts based on the available data, which could have been derived from previous year's collections, aging of receivables, or specific instances of non-payment identified prior to the financial statement preparation. By selecting £10,200, it indicates recognition of actual potential losses rather than overstating or understating the anticipated financial position.