The correct answer is A. When you are eligible for VAT relief on a bad debt, you must make the appropriate accounting entries to reflect this relief. The bad debt is considered an expense, and reducing this expense is done by crediting the bad debts ledger. The HMRC account is a liability account, and a debit entry reduces the liability owed by the firm to HMRC. Therefore, to claim VAT relief, you should debit the HMRC ledger and credit the bad debts ledger in the office section. This aligns with the requirements of HMRC that any VAT relief sought for bad debts be reflected in separate bad debts and HMRC ledgers.

• Key Point: Properly recording VAT relief on bad debts involves reducing the bad debts expense and the liability to HMRC. This ensures accurate financial records and compliance with VAT regulations. The specific entries ensure that the firm correctly reflects the reduction in VAT liability due to the bad debt.

Option B is incorrect because it reverses the necessary entries.

Option C is incorrect because it involves the client's ledger, which is not relevant for claiming VAT relief on bad debts.

Option D is incorrect for the same reason as Option C; it misplaces the necessary entries.

Option E is incorrect because it involves the profit costs ledger, which is not relevant to this transaction.