Accounting Online Program Certification Practice Test

What is the irrecoverable debts expense that should appear for the year ended 31 December 20X2?

1. £24,200

2. £38,000

3. £50,000

4. £36,200

The correct answer is: £24,200

To determine the irrecoverable debts expense for the year ended 31 December 20X2, it's important to understand the context of irrecoverable debts, commonly known as bad debts. This account records the estimated amount of receivables that will not be collected due to customers' insolvency or other reasons that lead to non-payment. The correct amount of irrecoverable debts expense reflects an accurate assessment based on the company's accounts receivable data, factoring in historical loss rates, current economic conditions, and specific customer evaluations. If the company previously estimated that a certain percentage of receivables would become uncollectible and this year they identified additional debts that were confirmed uncollectible, the irrecoverable debt expense recognized in the financial statements would be calculated accordingly. In this scenario, if £24,200 represents the amount assessed based on the above evaluations and is well-supported by historical data or current assessments of collectability, that amount corresponds to the total irrecoverable debts for the year. This amount should be recognized in the income statement for the year in question to reflect the anticipated loss from bad debts. Understanding how the calculation is based on both historical and current evaluation techniques aids in recognizing why £24,200 is the accurate figure to report in