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ACCA Applied Knowledge · Financial Accounting · Receivables and payables

Last year Jonas Co wrote off a debt of $800 from a customer. This year the customer unexpectedly pays the full $800 in cash. Which entry should Jonas Co make this year?

Jonas Co reinstates the debt by debiting trade receivables and crediting irrecoverable debts recovered, then records the cash receipt by debiting cash and crediting trade receivables. This restores the customer account history and recognises the recovery in profit or loss, rather than treating it as new sales revenue.

  1. ADebit Cash $800; credit Revenue $800
  2. BDebit Cash $800; credit Trade receivables $800 only
  3. CDebit Trade receivables $800; credit Irrecoverable debts recovered $800, then debit Cash $800; credit Trade receivables $800Correct
  4. DDebit Irrecoverable debts expense $800; credit Cash $800

Explanation

The debt was previously written off, so first reinstate it: debit receivables, credit irrecoverable debts (recovered). Then record the receipt: debit cash, credit receivables. Option B would leave receivables credited with no matching balance and no recovery recognised.

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