Sometimes a receivable is written off as irrecoverable in one accounting period, and then payment is (unexpectedly) received in a subsequent accounting period.
When a receivable is written off the double-entry is:
Debit
Irrecoverable debts expense
Credit
Receivables
The full accounting entries for payment received relating to that receivable in a subsequent accounting period are:
First entry:
Debit
Receivables (to reinstate the receivable that had been cancelled when the debt was written off)
Credit
Irrecoverable debts expense (shown as a reduction in the irrecoverable debt expense in the statement of profit or loss)
And, to record the receipt:
Debit
Cash at bank
Credit
Receivables
Note that this is the usual double-entry for payment received from a credit customer.
This two sets of accounting entries above can be simplified to:
Debit
Cash at bank
Credit
Irrecoverable debts expense
The debit and the credit to the receivables general ledger account cancel each other out, leaving the net adjustment to be the receipt of cash and a reduction in irrecoverable debts expense account.
Ling prepares financial statements to 31 December each year. At 31 December 20X7 there were receivables' of $3,655 and there was also a debt written off from L Moss of $699. During the year to 31 December 20X8 Ling made credit sales of $17,832 and received receipts from credit customers totalling $16,936. During 20X8, Ling also received the $699 from L Moss that had been written off in 20X7.
Write up these transactions in Ling's general ledger accounts for 20X7 and 20X8.
For a suggested answer, see the 'Answers' section at the end of the book.