8: Irrecoverable debts and allowances Flashcards

1
Q

What are irrecoverable debts

A

Receivables that are not expected to be paid and are therefore “written off” e.g. cancelled in trade receivables ledger and charged against p/l.

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2
Q

What is the double entry journal

A

Dr Irrecoverable debt expense (IDE)
Cr Trade receivables

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3
Q

What is the entry in the rare situation an IDE is paid?

A

Dr cash
Cr IDE

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4
Q

What do businesses do when they doubt customers ability to pay?

What is the allowance for receivables?

A

If there is a doubt over a customers ability to pay but business still wants to chase the debt then a separate allowance can be made for these doubtful receivables.

In practice, a business will use past experience to estimate probability of non-payment and then set an allowance for the total potential amounts that may not be recovered from customers.

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5
Q

What is the double entry to increase and decrease an allowance?

A

Increase allowance:
Dr IDE
Cr Allowance for receivables

Decrease:
Cr Allowance for receivables
Dr IDE

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6
Q
A
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