Irrecoverable debts exp account vs. allowance for doubtful debts adjustment

Danielle Milton

I have a question in my text book where "an irrecoverable debt of £2800.00 is to be written off and an allowance of 2% is to be maintained of the remaining receivables You are required to draft journal entries to put through the year end adjustments"

My answer was:
Irr. debts expense a/c 2800 Dr and SLCA 2800 CR
and Allowance for doubtful debts 48 DR and Allowance for doubtful debts adjustment account 48 CR.

However, the book give the answer that the 48 CR goes into the Irr. debts expense a/c and I am at a loss as to why. In other similar questions the allowance for doubtful debts always go to the Allowance for doubtful debts and it's adjustment account. I cannot tell if this an error in the text book (I've found three other errors in previous chapters) or am I missing something.

wabisabi

Hi Danielle

I agree with you that it's a mistake, but I disagree about the postings for the doubtful debts. If you are creating a new doubtful debt allowance or increasing the existing allowance you would debit the adjustments a/c (which gets transferred to the Income Statement as an expense) and credit the allowance for doubtful debts a/c (which appears in the SFP as a liability on the credit side). You would only Cr the adjustments a/c and Dr the allowance for doubtful debts a/c if the allowance was decreasing.

Best wishes