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At the start of the year Joe had an allowance of $700 against receivables.
During the year $450 of this amount went bad and $150 was received;
the balance remained unpaid at the year end.
Another amount of $170 went bad.
At the year-end it was decided to provide for a new debt of $240.What was the total irrecoverable debt expense for the year?
A $170
B $260
C $410
D $710The answer is B but I do not understand.
Also are bad debts irrecoverable or doubtful? I watched your lectureThanks again for this!
I will answer, but this question really is an unfair one.
(Bad debt is what we used to call an irrecoverable debt)
There are two things to get the total expense.
1) There are irrecoverable debts of 450 + 170 = 620
2) The allowance needs to be changed. At the start of the year it was 700.
Of this 700, we no longer need 450 (which became irrecoverable) and we no longer need 150 (because the have paid). This leaves 100 that presumably we still need. In addition it says another 240 is to be provided for as doubtful. That gives a total of 340.
So….we need to reduce the allowance from 700 to 340. A reduction of 360.
Because we are reducing the allowance, it is effectively a negative expense.So…the total expense is 620 – 360 = $260.
However, I really would not waste any time on this question. We no longer call them bad debts; we no longer talk about providing for a doubtful debt; and the 100 remaining of the allowance would in fact more likely now be regarded as an irrecoverable debt.
Hi,
What is the double entry when a debt already provided for in allowance went bad?
Also what is the double entry when such a debt was eventually paid for?
Thanks
If a debt already provided for becomes irrecoverable then the entry is Debit Irrecoverable debts expense; Credit Receivables.
(and obviously it is not included in calculating the allowance required at the end of the year).If a debt already provided for is paid, then the entry is Debit Cash; Credit Receivables.
(and again, it will not be included when calculating the allowance required at the end of the year)I do suggest that you watch our free lectures on irrecoverable and doubtful debts. Our lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
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