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Accounting for irrecoverable debts and allowances for receivables
Accounting for irrecoverable debts
1.1 Irrecoverable debts
When it becomes known that a customer is unlikely to pay, the receivable balance
must be removed (since it is no longer an asset of the business) and transferred to
the statement of profit or loss as an expense for the period. This may also be
referred to as a bad debt.
The double entry will be:
Debit Irrecoverable debts expense account
Credit Receivables account
There may be circumstances where only part of the debt needs to be written off as
an expense.
One irrecoverable debts account is used to record all irrecoverable debts occurring
during a year. At the end of the year the balance on the irrecoverable debts expense
account is transferred to the statement of profit or loss.
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