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CIMA BA3 Irrecoverable Debts and Allowances (part c)
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I do not understand exactly why we must debit the 8000 for George again as an expense. We have created the allowance for the prior year and made the expense record. I think all we need to do is debit the allowance and credit the receivables, the expenses have been recorded the prior year.
As feedback, would be good to give the option to add images to the comments or queries. I would like to show how I worked and have your opinion.
The way I worked is mainly reverting all that has been wrongly recorded, but the balance of the ledgers at the end is the same. but in a few words, I reverted the unrecoverable of Paul and then collected as usual, I reverted George’s doubtful debt and recorded it as irrecoverable and reverted the ann doubtfully record and collected it. After all the final balances in my ledgers match yours but the balance in the allowance account is a result of several transactions not just an adjustment.
You can do it either way – as you say it gives the same final answer which is what matters.
The way I show in the lecture is the easiest and quickest way of doing the entries.
Hi John- Why when writing off Irrecoverable debts do we write off the sale value (expected Revenue) of the debt and not the Cost of sale value? Surely companies would rather write off the cost of sale value of the services they initially sold in order to minimise the expense they write off to the P&L?
Ignore me- they would have already recognised the cost of sale of the services/good sold in the P&L when they initially accrued the revenue. So is the write off of the irrecoverable debt just removing the previously accrued revenue/ receivable by stating it as an expense cost in a later period?
Correct