Fernway Deliveries writes up a separate account for irrecoverable debts and a separate allowance account. Complete the table below, giving the account debit...

Three accounts must be kept apart. Irrecoverable debts is an expense for balances known to be lost. Allowance for irrecoverable debts is a running estimate against balances still outstanding. Irrecoverable debts recovered is income arising when a debt already written off is paid after all.

Each mark needs both halves of the entry to be right. Why each line takes that form:

1. Writing off $340 removes the asset, so the trader's personal account is credited, and recognises the loss, so the irrecoverable debts expense is debited. No cash entry is made because no money has moved.
2. Increasing the allowance by $180 charges only the increase to the income statement. The earlier balance was already charged in a previous year, so recharging it would count the same doubt twice. Trade receivables are untouched, because no individual customer has been identified.
3. The $95 recovery brings money in, so bank is debited. The credit cannot go to the customer's account, because that balance was cleared when the debt was written off; it goes to irrecoverable debts recovered as income of the current year.
4. Reducing the allowance by $60 releases part of an earlier charge, so the allowance account is debited and the income statement credited, which increases profit.
5. Transferring the $625 total closes the expense account at the year end: the income statement is debited and the irrecoverable debts account credited, leaving nothing to carry forward.

For the allowance, only the movement is posted, and the direction of that movement decides which side of the allowance account is used.

Total .