Accounting chapter 13 (Irrecoverable debt and Provision for doubtful debts)

Question 1

What is Irrecoverable debt?

Answer 1

An amount owing to a business which will not be paid by the credit costumer.

Question 2

When is a debt written off?

Answer 2

When all reasonable steps to obtain payment have failed.

Question 3

When can a written off debt be recovered?

Answer 3

A debt written off may be recovered if a credit costumers pay some, or all of the amount due after it was written off.

Question 4

Methods to reduce the possibility of irrecoverable debts.

Answer 4

i) Obtaining credit references from costumers
ii) Fixing a credit limit for each costumer
iii) Issuing invoices and month-end statements to remind them
iv) Taking legal action
v) Use of factoring and invoice discounting.

Question 5

What is Provision for doubtful debt?

Answer 5

An ammount which a business will lose in a financial year because of irrecoverable debts.

Question 6

What is doubtful debt?

Answer 6

Doubtful debt is an estimation of the amount of money a business will lose, due to irrecoverable debts.

Question 7

What is another term for irrecoverable debts?

Answer 7

Bad debt