We incur expenses when we consume our resources. I have trouble to understand this in relation to debts written off. If you write off your receivable you incur expense - you record it on irrecoverable debt expense account. Receivable is your resource, your asset. Since we have expense it makes me wonder what resource did we consume here ? i understand this concept in relation to materials for instance. We put some materials into production and when product is sold we have cost of goods sold which is an expense. We consumed our resource , our materials and we have expense now . I have troubles to understand this concept in relation to receivables. Can anybody help?
i did some reading and it seems that because we won' t get money from our receivable our expense reflects expected reduction in economic benefits. I think it makes sense.
When you are creating a receivable, you are recognising income. It therefore follows that a cancellation of that income (writing off a debt) should be recognised as a cost.
