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Hi Mr John..In chapter 8 example 3: In 2001 31 December , $8000 (which was doubtful debt) is credited to receivable and debited to expense by you after being known as irrecoverable.The thing is yes we should totally remove this irrecoverable debt from receivable completely like you do but when you debited this 8000 in expense I’ve a doubt appeared …Don’t you think we already transferred this to expense in the previous year 2000 when it was known as doubtful debt …Now it feels like we are trying to make it an expense twice 1: when known doubtful and 2: when known irrecoverable , the same debt for both situations…..I think when doubtful debt is transformed into irrecoverable First we should remove it completely from receivable and Secondly remove it from allowance for receivables….
Thank you..If you want you can remove it from the allowance – no problem.
However although that means that the figure in the expense account is lower, it will also mean that the cost of increasing the allowance will be higher (because removing it from the allowance will reduce the existing figure). The end result will be exactly the same.
Try it yourself and you will see what I mean 🙂
(But the method in the lecture is faster and safer. However, it doesn’t really matter for the exam because there is very little testing of t-accounts – you cannot be asked to write up the t-accounts for this sort of question and there is no need.)
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