PRC-1 · Chapter 5 · Question 42 of 100
In the context of doubtful debts, what is the accounting treatment for a customer who disputes an invoice and refuses to pay, but the company continues to pursue legal action for recovery?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Retain the gross receivable and create a specific allowance against it.
Explanation
Because the company is still pursuing recovery (it is not 100% irrecoverable yet), the debt cannot be written off. Instead, a specific allowance is created to reflect the high risk of non-payment.
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