Irrecoverable Debt Write-Off

Steps:

• Identify irrecoverable debt as an amount owed that cannot be collected, requiring write-off to reflect true financial position.
• Assess customer payment ability: review communication, bankruptcy, or insolvency indicators.
• Confirm non-recovery: if customer lacks funds or assets, debt is deemed uncollectible.
• Record write-off: debit bad debts expense and credit accounts receivable to remove from books.

Why D is correct:

• Irrecoverable debt is defined in accounting as a receivable the debtor cannot pay, per prudence principle, ensuring assets are not overstated.

Why the others are wrong:

• A: Late payment at period-end does not confirm irrecoverability; it may just need follow-up.
• B: Stopping purchases does not mean inability to pay existing debt.
• C: Missing due date indicates delinquency but not definitive non-payment capacity.

Final answer: D