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ACCA Applied Knowledge · Financial Accounting · Receivables and payables

Kestrel Co writes off an irrecoverable trade receivable of $1,200 (the invoice amount, with no sales tax involved). Which journal correctly records the write-off?

The write-off is recorded by debiting irrecoverable debts expense and crediting trade receivables with $1,200. The receivable is no longer an asset because it will not be collected, so the balance is removed and the loss is charged to profit or loss.

  1. ADr Irrecoverable debts expense $1,200; Cr Trade receivables $1,200Correct
  2. BDr Trade receivables $1,200; Cr Irrecoverable debts expense $1,200
  3. CDr Allowance for receivables $1,200; Cr Sales $1,200
  4. DDr Irrecoverable debts expense $1,200; Cr Allowance for receivables $1,200

Explanation

A write-off removes the asset and recognises an expense. Trade receivables is credited to cancel the balance and irrecoverable debts expense is debited. Option B reverses the entries, which would be the treatment of a recovery of a debt previously written off in the same period.

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