Introduction To Bookkeeping: Irrecoverable Debts
Overview
Selling on credit means trusting a customer to pay later, and most of the time that trust is well placed. But every business that offers credit eventually meets a customer who will never pay: gone out of business, disappeared, or simply refusing to settle the bill. What happens to that unpaid balance in the books is the subject of this lesson.
In this lesson you will learn what an irrecoverable debt is, how to write off a specific customer's debt using double entry, why a business also sets aside a provision for irrecoverable debts, and how the two ideas differ.
Objectives
- Explain why it is necessary to provide a provision for irrecoverable debts
- Distinguish between an irrecoverable debt and a provision for an irrecoverable debt
- Calculate and record irrecoverable debts and provision for irrecoverable debts in the books of account
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Lesson Evaluation
Congratulations on completing the lesson on Introduction To Bookkeeping: Irrecoverable Debts. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Which of the following best describes an irrecoverable debt? A) A debt paid after the due date B) A specific customer's debt considered permanently uncollectable C) An estimate applied to total trade receivables D) A debt owed to a supplier Answer: B
- What is the double entry to write off a specific customer's irrecoverable debt? A) Debit the customer's account, credit irrecoverable debts B) Debit irrecoverable debts, credit the customer's account C) Debit cash, credit irrecoverable debts D) Debit irrecoverable debts, credit cash Answer: B
- A business creates a provision for irrecoverable debts for the first time. Which accounts are affected? A) A specific customer's account and cash B) Irrecoverable debts and the provision for irrecoverable debts account C) Sales and purchases D) Capital and drawings Answer: B
- Trade receivables are $40,000 and the business creates a provision for irrecoverable debts of 3% for the first time. What is the provision? A) $400 B) $1,200 C) $4,000 D) $12,000 Answer: B
- Which accounting concept justifies setting up a provision for irrecoverable debts before any specific customer has failed to pay? A) Consistency B) Materiality C) Prudence D) Business entity Answer: C
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