Irecoverable Debts And Allowances Flashcards
Signs a debt may be irrecoverable
- Bankruptcy
- Disappearance
- Refusal
Is the original sale of an irrecoverable debt kept in the accounts?
Yes
Because it did take place
Irrecoverable debt expense DE
Dr irrecoverable debt expense
Cr receivables
What type of expense is irrecoverable debt?
Admin expense
Unexpected receipt of debt thought to be irrecoverable DE
Dr cash
Cr irrecoverable debt expense
What sort of figure is the irrecoverable debt expense account?
A net figure
Because includes debts and recovery of previously written off debts
When is the allowance for receivables calculated?
After all irrecoverable debts have been written off
Creating an allowance for receivables DE
Dr irrecoverable debt expense (P&L)
Cr allowance for receivables (BS)
When is the allowance for receivables recalculated?
Each year end
Difference between the allowance at the start and end of the year is charged/credited to the P&L
Increase in allowance for receivables DE
Dr irrecoverable debt expense
Cr allowance for receivables
Decrease in allowance for receivables DE
Dr allowance for receivables
Cr irrecoverable debt expense
Irrecoverable debt expense (exam) recording process
- Insert b/f balances for receivables (dr) and the allowance (cr)
- Write off irrecoverable debts
- Record recovery of irrecoverable debts
- Close off receivables account to obtain closing balance
- Calculate and post the required movement to the allowance for receivables
- Close allowance and expense accounts
What to do if there is already an allowance in place for irrecoverable debt?
The accounting treatment doesn’t change
Receiving cash from credit customer there existed an allowance for DE
Dr Cash
Cr Receivables
Writing off customer debt that there was already an allowance for
Dr irrecoverable debts expense
Cr receivables
