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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 🙂
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.