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Is it true that we make reversal entries to remove the original entry created before.
For eg we make allowance against doubtful debt by making this entry.
DR Irrecoverable expense
CR Allowance For ReceivableWe will remove the allowance once the customer pay the cash.
DR Allowance For Receivable
CR Irrecoverable expenseThen record the cash entry from the customer.
DR Cash
CR ReceiveableIs that correct?
You can do that, but because of keeping a general allowance (and for that we just adjust the balance brought forward to get the new balance required), it is far better to take the approach that I work through in my free lectures on irrecoverable and doubtful debts.
I already watched the lecture but please correct me if I am wrong anywhere.
(1) Whenever we write-off the irrecoverable debtor we make this entry.
DR Irrecoverable expense
CR Receiveable(2) We make the allowance against doubtful debt at the year-end but it does not remove the receivables from our books (so we need to remove).
DR Irrecoverable expense
CR Allowance For Receivable(3) Whenever we write-off the doubtful debtor we make this entry
DR Allowance For Receivable
CR Receiveable(4) Whenever we receive a cash from customers previously irrecoverable or doubtful debtors we always make this entry.
DR Cash
CR Receiveable(5) We make allowance at the end of Year 1 and then we adjust it by the increase or decrease in Allowance For Receivable account at the end of Year 2.
Why are you summarising all of the debits and credits from my lectures? You cannot be asked to write up t-accounts in the exam – it is a financial accounting exam and not a bookkeeping exam.
I know but I’m trying to make sense whether these statements are correct or not. Please say whether they are right. Thanks
1 is correct
2 is not correct. The entry is of the amount needed to adjust the allowance to the amount required.
3 is correct
4 is not correct. If a debt has previous been written off as being irrecoverable then no receivable exists and therefore we debit cash and credit irrecoverable debts expense.
5 is correct
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