ICAEW AF · Chapter 5 · Question 7 of 9
A cheque received from a credit customer and banked last week has been returned by the bank marked 'refer to drawer'. What double entry should the business make?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Debit Trade receivables, Credit Cash at bank
Explanation
When the cheque was banked, the business debited cash and credited the customer's account. The cheque has been dishonoured, so that entry must be reversed: the customer owes the money again (debit trade receivables) and the bank balance is lower (credit cash at bank). It is not yet an irrecoverable debt, because the customer may still pay.
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