Irrecoverable debts exp account vs. allowance for doubtful debts adjustment

Danielle Milton
Danielle Milton Registered Posts: 23 Dedicated contributor 🦉
in AAT Level 3 (Level 6 in Scotland)
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.

Comments

  • CeeJaySix
    CeeJaySix Registered Posts: 645
    It could be an error, or lack of consistency in the book. Does the question tell you what accounts are in the ledger? It could simply be that the company doesn't use an 'adjustment' account. In the real world everyone has a slightly different way of achieving the same end, even if it's just in naming conventions. Ultimately there's nothing wrong with using bad debts in the P&L to adjust your provision in the balance sheet, as the loss is still recognised under a relevant account. From memory in the exams it won't be an issue - your choice of accounts is a drop down menu, so if there's an adjustment account, use it, if not, use the bad debts account.
  • shevro
    shevro Registered Posts: 2
    I am having the exact same problem. I am unsure when to use the doubtful debts adjustments a/c or the irrecoverable debts a/c with concerns of double entry from the doubtful debts a/c. In some questioning it post to adjustment a/c and sometimes the irrecoverable a/c does anybody know why? Any help would be appreciated
  • raya_70
    raya_70 Registered Posts: 2
    shevro said:

    I am having the exact same problem. I am unsure when to use the doubtful debts adjustments a/c or the irrecoverable debts a/c with concerns of double entry from the doubtful debts a/c. In some questioning it post to adjustment a/c and sometimes the irrecoverable a/c does anybody know why? Any help would be appreciated

    Hi ,
    You use the doubtful debt a/c when a debt is irrecoverable and is written off and you use doubtful debts adjustments (or P&L) a/c when you make allowance for doubtful debts and when this allowance change over the year .

Categories

Privacy Policy