Skip to content

ACCA Applied Knowledge · Financial Accounting · Receivables and payables

Mara Co has receivables of $23,000 including 15% sales tax on all credit sales. The tax-inclusive receivable of $2,300 is confirmed irrecoverable and tax relief is available on bad debts, with the tax adjusted through the sales tax account. How is the write-off correctly recorded?

Debit irrecoverable debts expense $2,000 and sales tax payable $300, and credit receivables $2,300. The tax element of $300 is 15/115 of the gross debt and can be reclaimed, so only the net $2,000 is an expense.

  1. ADr Irrecoverable debts expense $2,000; Dr Sales tax payable $300; Cr Receivables $2,300Correct
  2. BDr Irrecoverable debts expense $2,300; Cr Receivables $2,300
  3. CDr Irrecoverable debts expense $2,000; Cr Receivables $2,000
  4. DDr Irrecoverable debts expense $2,300; Dr Sales tax payable $300; Cr Receivables $2,600

Explanation

The gross debt of $2,300 includes tax of $2,300 x 15/115 = $300. Net expense is $2,000. The $300 is reclaimed by debiting sales tax payable. Writing off the full $2,300 to expense ignores the available relief.

Did you get it right without looking?

One question tells you little. A timed set on Receivables and payables shows your real accuracy, how long you take and where you lose marks.

Practise Receivables and payablesFree diagnostic mock

More Receivables and payables questions