I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

PART D: RECORDING TRANSACTIONS AND EVENTS 

 

212

 

QUESTION 

Irrecoverable debts II

 

At 1 October 20X5 a business had total outstanding debts of $8,600. During the year to 30 September 

20X6 the following transaction took place. 

(a) 

Credit sales amounted to $44,000. 

(b) 

Payments from various customers (accounts receivable) amounted to $49,000. 

(c) 

Two debts, for $180 and $420, were declared irrecoverable and the customers are no longer 

purchasing goods from the company. These are to be written off. 

Required 

Prepare the trade receivables ledger account and the irrecoverable debts expense account for the year. 

ANSWER 

TRADE RECEIVABLES (SOFP) 

 

$ 

 

$ 

Opening balance b/f 

8,600

 

Cash 

49,000

Sales 

44,000

 

Irrecoverable debts 

180

 

 

Irrecoverable debts 

420

 

            

 

Closing balance c/d 

   3,000

 

 52,600  

 52,600

Opening balance b/d 

   3,000  

IRRECOVERABLE DEBTS EXPENSE (SPL) 

 

$ 

 

$ 

Receivables 

180 

 

P/L a/c 

600 

Receivables 

 420 

 

       

 

 600 

 

 600 

In the receivables ledger, personal accounts of the customers whose debts are irrecoverable will be 

taken off the ledger.  

1.3 Irrecoverable debts written off and subsequently paid 

An irrecoverable debt which has been written off might occasionally be unexpectedly paid. Because the 

debt has already been written off, it no longer exists in the statement of financial position and so the 

cash received cannot be offset against it in the usual way. Instead, the cash received is offset against the 

irrecoverable debts expense. Regardless of when the payment is received, the ledger entries are as 

follows. 

DEBIT Cash 

account 

CREDIT Irrecoverable 

debts 

expense 

For example, a statement of profit or loss for the Blacksmith's Forge for the year to 31 December 20X5 

could be prepared as shown below from the following information. 

 

$      

Inventory, 1 January 20X5 

6,000 

Purchases of goods 

122,000 

Inventory, 31 December 20X5 

8,000 

Cash sales 

100,000 

Credit sales 

70,000