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Allowance

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Allowance

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • February 16, 2018 at 2:32 pm #437600
    miracle657
    Participant
    • Topics: 65
    • Replies: 26
    • ☆☆

    A company has been notified that a receivable has been declared bankrupt.
    The company had previously made a specific allowance for this debt. Which
    of the following is the correct double entry?
    A. Dr-Irrecoverable debts account Cr-Account receivable
    B. Dr-Account receivable Cr-Irrecoverable debts account
    C. Dr-Allowance for receivables Cr-Account receivable
    D. Dr-Account receivable Cr-Allow for receivables
    Sir, one Kit says correct answer is A, the other says it is C..I confused which one is correct? Thank in advance 🙂

    February 16, 2018 at 3:40 pm #437622
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    This could not really be asked in the real exam because it would be unfair – because (as you will know from my free lectures) both A and C are valid entries.

    Either C – which removes the receivable and removes the allowance.

    Or A – which removes the receivable and debits irrecoverable debts expense. But then we would adjust the allowance with the double entry going to irrecoverable debts expense.

    C would be more likely if there were no other allowances involved, but usually there are other specific allowances and also a general allowance, in which case A would be more likely.

    Here, given there is no mention of any other allowances, and given that each of the choices only mentions one entry, then strictly C would be the better answer.

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