Irrecoverable Debts and Allowances

Question 1

What is an irrecoverable debt?

Answer 1

A debt that is not expected to be paid.

Question 2

What does writing off mean?

Answer 2

Charging the cost of the debt against the profit for the period.

Question 3

What is the accounting treatment for writing off an irrecoverable debt?

Answer 3

Dr Irrecoverable Debts Expense

Cr Trade Receivables

Question 4

What is the accounting treatment for an irrecoverable debt that gets paid?

Answer 4

Dr Cash

Cr Irrecoverable Debts Expense

Question 5

What is the accounting treatment for a dishonoured cheque?

Answer 5

Dr Trade Receivables

Cr Cash

Question 6

What is an allowance for receivables?

Answer 6

An amount in the relation to the probability of the non-recoverability of debts that reduces the receivables asset.

Question 7

What is the accounting treatment for an allowance for receivables?

Answer 7

Dr Irrecoverable Debts Expense

Cr Allowance for Receivables

Question 8

What is the accounting treatment for increasing an allowance for receivables?

Answer 8

Dr Irrecoverable Debts Expense

Cr Allowance for Receivables

Question 9

What is the accounting treatment for decreasing an allowance for receivables?

Answer 9

Dr Allowance for Receivables

Cr Irrecoverable Debts Expense

Question 10

What do we do if we made an allowance last year but received the money this year?

Answer 10

Dr Cash
Cr Trade Receivables
Dr Allowance for Receivables
Cr Irrecoverable Debts Expense

Question 11

What do we do if we made an allowance last year but it is an irrecoverable debt this year?

Answer 11

Dr Allowance for Receivables

Cr Trade Receivables