A hospitality business receives its bank statement showing an overdrawn balance of $4,200. The business discovers a direct debit for electricity of $400 has not been recorded in the cash book, and a customer's cheque for $600 has been returned unpaid (bounced). What is the correct double-entry to update the cash book for the returned cheque?

Answer options:

Debit Cash Book $600, Credit Trade Receivables $600

Debit Bad Debts Expense $600, Credit Cash Book $600

Debit Trade Receivables $600, Credit Cash Book $600

Debit Suspense $600, Credit Cash Book $600

How to approach this question

Think about the original entry when the cheque was received (Dr Cash, Cr Receivables). A bounced cheque reverses this entry.

Full Answer

C.Debit Trade Receivables $600, Credit Cash Book $600✓ Correct

When a customer's cheque is returned unpaid (dishonored), the business no longer has the cash, and the customer owes the money again. The original entry (Debit Cash, Credit Receivables) must be reversed. Therefore, Debit Trade Receivables $600, Credit Cash Book $600.

Common mistakes

Writing it off immediately to bad debts (Option B).

Question 21 All questions Question 23

Practice the full ACCA FA — Financial Accounting Practice Exam 4

65 questions · hints · full answers · grading

More questions from this exam

Q01Global Water Initiative, an international NGO, receives a restricted grant of $500,000 specifical...Medium Q02MetroGrid Water, a public utility company, is preparing its annual financial statements. Which of...Easy Q03EuroTrade Logistics operates across multiple European borders. Which TWO of the following are pri...Medium Q04CloudSync Inc, a tech startup, is developing a new proprietary algorithm. The directors want to c...Medium Q05GreenHarvest Farms changes its depreciation method for tractors from straight-line to reducing ba...Medium

View all 65 questions →