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ACCA Applied Knowledge · Financial Accounting · Receivables and payables

Which statement about the allowance for receivables and irrecoverable debts is correct?

A write-off credits the trade receivables control account and debits irrecoverable debts expense, while an increase in the allowance debits the expense and credits a separate allowance account. The allowance never alters the control account itself, and a decrease in it is credited to profit or loss.

  1. AA specific debt written off is credited to the receivables ledger control account, whereas an increase in the allowance is credited to the allowance accountCorrect
  2. BAn increase in the allowance for receivables reduces the trade receivables control account balance
  3. CA decrease in the allowance is debited to irrecoverable debts expense
  4. DWriting off a debt reduces the allowance for receivables directly

Explanation

A write-off credits the receivables control account and debits the expense. An allowance increase debits the expense and credits the allowance account, which is a separate contra-asset. The allowance does not change the control account balance, so option B is wrong. A decrease in the allowance is credited to the expense, so option C is wrong.

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