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ACCA Applied Knowledge · Financial Accounting · Receivables and payables

Delta Co previously wrote off a $2,400 receivable as irrecoverable. The customer unexpectedly pays the full amount in cash in the current year. Which journal correctly records the receipt?

The debt must first be reinstated by debiting trade receivables and crediting irrecoverable debts expense, reversing the earlier write-off. The cash receipt is then recorded by debiting cash and crediting trade receivables. This keeps the customer's ledger account complete and the expense correctly reversed.

  1. ADr Cash $2,400; Cr Trade receivables $2,400 only
  2. BDr Cash $2,400; Cr Allowance for receivables $2,400
  3. CDr Trade receivables $2,400; Cr Irrecoverable debts expense $2,400, then Dr Cash $2,400; Cr Trade receivables $2,400Correct
  4. DDr Cash $2,400; Cr Revenue $2,400

Explanation

The debt was written off, so first reinstate the receivable by debiting receivables and crediting the irrecoverable debts expense, then record the cash receipt against receivables. Crediting receivables only would leave an unmatched credit; crediting the allowance or revenue misstates the accounts.

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