ExpertMinds LogoExpertMinds
Easy1 markMultiple Choice
Recording Transactions: ReceivablesIrrecoverable DebtsReceivablesJournals

ACCA · Question 55 · Recording Transactions: Receivables

Section B - Case 2: Single Entity Accounts

Scenario: AquaHarvest Marine Farms
AquaHarvest prepares its financial statements for the year ended 30 September 20X6. The draft profit before adjustments is $120,000.
Issue 1: A payment for marine insurance of $6,000 for the year ending 31 December 20X6 was recorded entirely as an expense in the P&L.
Issue 2: Depreciation on harvesting equipment (Cost $80,000, Acc Dep $30,000) needs to be charged at 20% reducing balance.
Issue 3: A customer went bankrupt owing $2,500. This needs to be written off.
Issue 4: A suspense account has a $4,500 Credit balance because a cash receipt of $4,500 from a credit customer was only recorded in the cash book.

Regarding Issue 3, what is the journal entry to write off the irrecoverable debt?

Answer options:

A.

Debit Trade Receivables $2,500, Credit Irrecoverable Debts Expense $2,500

B.

Debit Irrecoverable Debts Expense $2,500, Credit Allowance for Receivables $2,500

C.

Debit Irrecoverable Debts Expense $2,500, Credit Trade Receivables $2,500

D.

Debit Allowance for Receivables $2,500, Credit Trade Receivables $2,500

How to approach this question

Writing off a debt means the asset (Receivables) must decrease (Credit) and an expense must be recognized (Debit).

Full Answer

C.Debit Irrecoverable Debts Expense $2,500, Credit Trade Receivables $2,500✓ Correct
To write off an irrecoverable debt, the Trade Receivables asset account must be reduced (Credited) and the Irrecoverable Debts Expense account must be increased (Debited).

Common mistakes

Crediting the Allowance for Receivables instead of Trade Receivables.
54All questions56

Practice the full ACCA FA — Financial Accounting Practice Exam 5

65 questions · hints · full answers · grading

Sign up freeTake the exam

More questions from this exam

Q01Section A Quantum Innovations, a rapidly growing tech startup, is preparing its first set of for...EasyQ02Section A MetroWater, a public utility company, is finalizing its annual report. The chief accou...MediumQ03Section A GlobalHealth NGO receives a restricted cash grant of $50,000 specifically designated f...MediumQ04Section A CircuitWorks manufactures specialized electronic components. At year-end, they have 1,...MediumQ05Section A CodeCrafters Ltd is developing a new proprietary software platform. During the year, t...Easy
View all 65 questions →