Accounting Treatment of Irrecoverable Debts

Steps:

• Identify irrecoverable debts as amounts deemed uncollectible from receivables.
• Write off irrecoverable debts by debiting bad debts expense and crediting receivables.
• Recognize the expense in the income statement to reflect the loss.
• Contrast with provision for doubtful debts, which estimates future uncollectible amounts.

Why B is correct:

• Irrecoverable debts represent actual losses, treated as a bad debts expense in the income statement per accrual accounting principles.

Why the others are wrong:

• A: The irrecoverable debts account is closed to the income statement at period-end, not carried forward.
• C: The provision for doubtful debts is calculated on the remaining receivables balance after deducting irrecoverable debts.
• D: The provision for doubtful debts appears as a credit balance in the trial balance.

Final answer: B