Question
Crestline Tools uses the direct write-off method for uncollectible accounts.
| Date | Event |
|---|
| March 12, 2026 | Determined that the $1,500 account of a customer was uncollectible and wrote it off. |
| August 5, 2026 | The customer unexpectedly paid the $1,500 in full. |
Required: Prepare the March 12 write-off and the two August 5 entries for the recovery (reinstate the account, then record the collection). Under the direct write-off method, the write-off is charged to Bad Debt Expense.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 9 — expected credit losses
The allowance is an estimate of receivables that will not be collected, recognised before any specific account is known to have failed. Keep the two mechanics apart: setting or adjusting the allowance affects profit, whereas writing a specific account off against an existing allowance does not.
Common mistakes
- Recording the full estimate as the expense when the allowance already carries a balance — under the balance-sheet approach the entry is the movement needed, not the target.
- Taking a write-off of a specific debt to expense a second time when an allowance already exists.
- Reducing the receivable directly and leaving no allowance account, which loses the gross amount.