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ACCA Applied Knowledge · Financial Accounting · Receivables and payables

A business writes off a receivable of $1,200 as irrecoverable. Which journal entry correctly records this?

The write-off is recorded by debiting irrecoverable debts expense and crediting trade receivables with $1,200. This removes the uncollectable asset from the receivables ledger and recognises the loss in profit or loss. Reversing the entry would wrongly increase receivables.

  1. ADebit Irrecoverable debts expense $1,200; credit Trade receivables $1,200Correct
  2. BDebit Trade receivables $1,200; credit Irrecoverable debts expense $1,200
  3. CDebit Allowance for receivables $1,200; credit Trade receivables $1,200 only if a specific allowance exists
  4. DDebit Irrecoverable debts expense $1,200; credit Revenue $1,200

Explanation

Writing off a debt removes the asset and recognises an expense. Debit irrecoverable debts expense and credit trade receivables. Option B reverses the entry, which would increase receivables and reduce expenses.

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