Chapter 9 - irrecoverable debts

Question 1

1. What are irrecoverable debts?
2. What are the idications that this may occur?

Answer 1

1. A debt which the business believes will never be paid.
2. Bankruptcy or dissapearance of customer, outright refusal to pay

Question 2

How are irrecoverable debts accounted for?

Answer 2

• They are removed freom accounts as are no longer an asset → expensed to the SPL
• Original sale remain in account as it did take place
• Dr irrecoverable income (SPL) → expense
• Cr recievables → asset

Question 3

1. What is an irrecoverable debt recovered?
2. What is its double entry?

Answer 3

1. Subsequent to being written off as irrecoverable a debt is paid.
2. Dr cash (SFP) Cr irrecoverable debt expense (SPL)

In the SPL the irrecoverable debts expense account includes both debt written off and revovred debt. Therefore the expense in the net figure

Question 4

1. What are doubtful recievables?
2. How to accounts recognise this?

Answer 4

1. A recievable which a business believes may not be paid.
2. They are not removed incase patment is made.

• An allowance for recievables is set up either in full or in part at the year end
• Cr allowance for recievables (SFP)
• Dr irrecoverable debts expense

Question 5

The allowance for doubtful reciecables is revieved each year.

Use the question bellow to help explain how you calculate the net recievables figure using the allowance for recievables from the previous year

Answer 5

Question 6

What is the general equation to calculate irrecoverable debts?

Answer 6

IDE = dedts written off + increase in allowance - decrease in allowance - recovery of debts written off

Question 7

What are the double entries for the following scenarios…

1. We reciecve cash from our credit customer that we had prviously had an allowance for?
2. We write off a customers debt that we had previously had an allowance for?
3. We write off a debt as irrecoverabble and the debt is dubsequently recovered.

Answer 7

1. Dr cash, Cr recievables allowed
2. Dr Irrecoverable debt expense, Cr recievables control
3. Dr cash, Cr irrecoverable debt expense

Question 8

What profit does irrecoverabke debt effect?

Answer 8

• Net profit
• _{Not gross profit}

Question 9

Wacko had a allowance for receivables at 1 January 20X0 of £1,000. He calculates that at 31 December 20X0 a provision of £1,500 is required. In addition £2,000 of debts were written off during the year, which includes £50 previously provided for.

Answer 9

2000 + 500 = 2500

Question 10

• At the beginning of the year a business had an allowance of £350.
• During the year a debt previously provided for £150 had been received. Another debt of £100, which had been written off in a previous period, had been received.
• At the year-end and allowance of £500 was required.
• What is the charge or credit in the Statement of Profit or Loss in relation to the irrecoverable debt expense?

Answer 10

• Recovery of debt previously written off (100)
• Increase in allowance (500 – 350) (150)
• Irrecoverable debts expense 50