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Hallo,
When we look at irrec debt and allowance, I understand that we debit or credit the irrec. debt a/c, with an increase or decrease in allowance, but when the allowance is part of the irrec. debt a/c, doesn’t this distort the amount of the irrec debt, as whenever we have an increase or decrase in allowance, the irrec.debt, will not be the same as the irrec. debt, if we had no allowance, isn’t this distorting the amount for the actual irrec.debt?
Thank you!
No. It is difficult to explain here in a few words, but although different people deal with it in different ways (the way I do it in the lecture is the easiest and fastest) the same overall total expense will occur, and this is all that matters.
Hallo,
ok, I have to re-read it, to see the sequence.
I have two more questions to this topic and they are:
1. When the allowance balance is reduced to 0, e.g. we had op. bal. 300, now is reduced to 0, so we debit it with 300, is this debit transferred as a credit to the irrec. debt a/c or not?
2. When a debt is recovered, which has been previously written off, do we do the following, e.g. the recovered debt is 500, so:
Dr A/R 500
Cr Irrec. Debt 500cash is received
Dr Cash 500
Cr A/R 500Thank you!
1. Yes – it is credited to the irrecov debts expense account
2 Yes (or in fact if you want then you can make it quicker by simply Dr Cash Cr Irrec Debts expense – it gives the same result, and saves debiting receivables and later crediting receivables with the same amount).
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