Chapter 9

Question 1

Irrecoverable (bad) debt

Answer 1

Think a customer is no longer going to be able to fulfil their debt (receivable) and so it is written off after a review of the receivables balances

Question 2

Prudence concept

Answer 2

Not wanting to overstate assets

Question 3

Irrecoverable debt double entry

Answer 3

Dr - irrecoverable debt expense (P/L)
Cr - receivables

Question 4

Double entry if a recoverable debt is actually paid

Answer 4

Dr - cash
Cr - irrecoverable debt expense

Question 5

Allowance for receivables

Answer 5

A business has concerns about customer won’t be able to pay a debt but it is doubtful so it isn’t written off and is instead an allowance for receivables (negative) is set up as a percentage

Question 6

Allowance for receivables double entry

Answer 6

Dr - irrecoverable debt expense (P/L)
Cr - allowance for receivables (SoFP)

Question 7

Movements in allowance - increases

Answer 7

Dr - irrecoverable debt expense
Cr - allowance for receivables

Question 8

Movements in allowance - decrease

Answer 8

Dr - allowance for receivables
Cr - irrecoverable debt expense