Write off irrecoverable debts and record recoveries
Remove debts that will not be collected, recognise the resulting expense and account for money later recovered from a written-off customer.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These lessons cover objective 1.5.1 only: adjustments to draft financial statements. Sole traders (1.5.2), partnerships (1.5.3) and limited companies (1.5.4) remain to be mapped. Practice is self-checked, not an official Cambridge grade; the separately published 2029 syllabus, timed papers and human subject-teacher review remain outstanding.
Before you begin
- Use double-entry and accrual concepts from Topics 1.2 and 1.4. Each adjustment must update the correct statement-of-profit-or-loss and statement-of-financial-position accounts.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A customer has not paid yet. Is lateness alone enough to prove that the debt is irrecoverable?
What you will learn
- Write off an irrecoverable receivable
- Calculate net trade receivables after write-offs
- Record a subsequent recovery without restoring an unsupported balance
Remove a debt that is no longer recoverable
When evidence shows a customer balance will not be collected, write it off rather than continue to present it as an asset. Debit irrecoverable-debt expense and credit trade receivables for the amount written off.
Write-offs reduce receivables in the statement of financial position and reduce profit through the expense. They do not change cash because the customer has not paid. The decision should be supported by the information in the question or the business's evidence.
Treat a later recovery as a separate event
If a customer later pays an amount previously written off, record the cash received and the recovery in the period of receipt, using the presentation required by the question. Do not leave the old receivable outstanding after it was written off.
Keep the original write-off and subsequent recovery distinct so that the receivables balance and period results can be explained. A recovery is not a new credit sale and does not automatically reinstate the customer's old account.
Pause and explain
A $500 debt was written off last year, then the customer pays it this year. What should the business do?
Worked example
A customer owing $740 is confirmed bankrupt. The receivable is still in the ledger. State the journal and the effect on net receivables and profit.
Show the worked solution
- The debt is now considered irrecoverable based on the information given.
- Debit irrecoverable-debt expense $740 and credit trade receivables $740.
- Net receivables and profit each fall by $740, before any tax or other adjustment not stated.
Answer Dr Irrecoverable-debt expense $740; Cr Trade receivables $740. Receivables and profit each decrease by $740.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Trade receivables are $8,200 before writing off a supported $650 irrecoverable debt. Calculate the revised receivables and name the expense effect.
Give me a hint
Remove the written-off balance from receivables.
Compare my reasoning
- Revised trade receivables = 8,200 − 650 = $7,550.
- Debit irrecoverable-debt expense $650.
- Profit falls by $650 before any other adjustments.
Revised receivables are $7,550 and profit falls by the $650 expense.
Look for these in your work
- Receivable removed
- Expense stated
- Profit effect correct
A debt of $300 written off in a prior year is recovered in full by bank transfer. Give the current-period entry and state whether it is a credit sale.
Give me a hint
The cash is new this period, but the sales transaction is not.
Compare my reasoning
- Debit bank $300.
- Credit the recovery account or income presentation required by the question for $300.
- It is a recovery of a prior write-off, not a credit sale.
Dr Bank $300; Cr Irrecoverable debts recovered $300 (or the required recovery presentation). It is not sales revenue from a new credit sale.
Look for these in your work
- Cash entry correct
- Recovery distinct
- Sale classification avoided
A manager wants to keep an insolvent customer's $1,100 balance in receivables because a write-off lowers profit. Evaluate the accounting and decision risk.
Give me a hint
Financial statements should reflect the expected recoverability of the asset, not a desired profit figure.
Compare my reasoning
- Keeping an amount that will not be collected overstates trade receivables.
- It understates the expense and overstates profit and net assets.
- Use evidence about recovery and record the write-off when the debt is irrecoverable; maintain a separate collection follow-up if needed.
The proposal would misstate assets and profit. Record a supported write-off and handle any later cash recovery as a separate event.
Look for these in your work
- Statement misstatement identified
- Profit direction correct
- Accounting separated from collection follow-up
Common mistakes
- Leaving a written-off amount inside trade receivables
- Recording a write-off as a cash payment
- Restoring an old receivable when a later recovery should be recorded separately
What can you explain now?
What is the credit entry when a trade receivable is written off?
Compare with the explanation
Credit trade receivables
The credit removes the amount from the customer balance and total receivables.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
State the write-off entry and how a later recovery is recorded.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.