Chapter 7 Irrecoverable Debts

Question 0

Irrecoverable debts take place when?

Answer 0

A receivable has been recognised and an event occurs meaning it can’t be paid back.
E.G customer had become bankrupt

Question 1

What is an Irrecoverable Debt?

Answer 1

An irrecoverable debt is when a company is owed money and they believe they won’t recover the amount owed to them (bad debt)

Question 2

What two ways can irrecoverable debts be dealt with in double entry?

Answer 2

Reducing the receivable asset account directly or creating a separate allowance for receivables account

Question 3

A company will often reduce receivables in double entry when?

Answer 3

It is highly unlikely the debt will be paid

Question 4

If it is possible the debt will be paid the company will use what double entry?

Answer 4

Allowance for receivables account

Question 5

Double Entry of Receivables =

Answer 5

Asset of (receivables) decreases (Cr)

Loss of cash increase of (admin expenses) (Dr)

Question 6

Double entry of allowance for receivables =

Answer 6

Allowance for receivables (Asset) decrease (Cr)

Admin Expenses (Expense) increase (Dr)