Financial Accounting · Receivables and payables

Irrecoverable Debts and Debts Recovered Explained

Updated 11 October 2026 · Fact-checked

An irrecoverable debt is a receivable you no longer expect to collect. You write it off by debiting irrecoverable debts expense and crediting receivables. If cash is later received from a debt already written off, you reinstate it (debit receivables, credit irrecoverable debts expense), then record the receipt (debit bank, credit receivables).

Understand Irrecoverable Debts and Debts Recovered

When a business sells on credit, the customer owes money. That amount is an asset called a receivable. Sometimes the customer cannot pay, for example because of insolvency. The asset then has no value, so it must come out of the books.

The write-off does two things. It removes the receivable from the statement of financial position. It records an expense in profit or loss, called irrecoverable debts expense (often called bad debts). The original sale stays in revenue. The loss is shown separately as an expense.

Sometimes a customer pays after you wrote the debt off. The write-off was then wrong. You reverse it. The usual method is to reinstate the receivable first, then record the cash. This keeps the customer's account showing the full history. The net effect is a credit to the irrecoverable debts expense, which reduces the expense.

Do not confuse a write-off with an allowance for receivables. A write-off deals with a specific debt you know is lost. An allowance is an estimate for debts that might be lost. The allowance is a credit balance set against receivables. Only the change in the allowance goes to profit or loss. Specific write-offs reduce receivables directly.

If sales tax was charged on the original sale, the treatment depends on local tax rules. In ACCA FA questions, follow the information given. Usually you write off the full amount of the debt unless the question says to adjust for tax.

Key formulas to remember

Write off an irrecoverable debt: Dr Irrecoverable debts expense; Cr Receivables (control account); Use the full amount of the debt being written off.
Reinstate a debt later recovered: Dr Receivables; Cr Irrecoverable debts expense; This reverses the earlier write-off, in whole or in part.
Record the cash received: Dr Bank; Cr Receivables; Done after the reinstatement. Net effect: Dr Bank, Cr Irrecoverable debts expense.
Total expense for the period: Irrecoverable debts written off − Debts recovered + Increase in allowance (or − Decrease in allowance); This is the net figure charged in profit or loss.
Receivables after write-offs: Gross receivables − Irrecoverable debts written off − Allowance for receivables; The result is the net figure shown in current assets.

How to solve Irrecoverable Debts and Debts Recovered questions

Use this method for any question on writing off debts, recoveries or the profit or loss charge.

1Read the question and list each item: debts written off, debts recovered, and any allowance details.
2Decide whether each debt is a specific write-off or part of an estimate. Specific debts come off receivables. Estimates go to the allowance.
3Write the journal for each write-off: Dr irrecoverable debts expense, Cr receivables.
4For each recovery, reinstate first (Dr receivables, Cr irrecoverable debts expense), then record the cash (Dr bank, Cr receivables).
5Adjust gross receivables for write-offs before calculating any percentage allowance.
6Work out the total profit or loss charge: write-offs less recoveries, plus or minus the change in allowance.
7Check the answer type. Number entry needs the exact figure. Multiple choice needs the correct debit and credit sides.

Quickest way: Dr expense, Cr receivables: then reverse for recoveries

When to use it: Use this in Section A objective tests where you must pick a journal or a single figure within about three minutes.

Write-off: expense goes up, receivables go down. Debit the expense, credit receivables.
Recovery: the expense goes down. Credit the expense, debit bank in the net entry.
Net charge = write-offs − recoveries. Add any increase in the allowance.
Apply any percentage allowance to receivables after deducting the write-offs.
Cross-check that your answer uses the correct sign: a recovery lowers profit charge, never raises it.

Common mistakes in Irrecoverable Debts and Debts Recovered

Debiting receivables and crediting irrecoverable debts expense when writing off.
Students reverse the sides because both accounts are involved.
Fix: Remember the expense rises, so it is debited. Receivables fall, so they are credited.
Treating a debt recovered as sales revenue.
Cash coming in feels like income from a sale.
Fix: The sale was recorded earlier. A recovery reverses the write-off, so credit irrecoverable debts expense.
Applying the allowance percentage to receivables before deducting write-offs.
Students use the trial balance figure directly.
Fix: Deduct specific write-offs first. Then apply the percentage to the remaining receivables.
Charging the whole allowance to profit or loss each year.
Students confuse the allowance balance with the yearly expense.
Fix: Charge only the increase. Credit profit or loss with any decrease.
Mixing up an irrecoverable debt with an allowance for receivables.
Both reduce receivables and both are expenses.
Fix: A write-off is a known lost debt and removes the receivable. An allowance is an estimate held as a separate credit balance.

Worked examples

Example 1

A business has gross receivables of $50,000 at the year end. It writes off a debt of $2,000 as irrecoverable. It also wants an allowance of 5% of remaining receivables. The opening allowance was $1,500. Calculate the total irrecoverable debts charge in profit or loss.

Show the solution

Receivables after write-off: $50,000 − $2,000 = $48,000.
Required allowance: 5% × $48,000 = $2,400.
Change in allowance: $2,400 − $1,500 = $900 increase.
Total charge: $2,000 write-off + $900 increase = $2,900.

Answer: $2,900 is charged to profit or loss. Net receivables are $48,000 − $2,400 = $45,600.

Example 2

Last year a customer's debt of $800 was written off. This year the customer pays $800 in full. What are the journal entries, and what is the effect on profit?

Show the solution

Reinstate the debt: Dr Receivables $800; Cr Irrecoverable debts expense $800.
Record the cash: Dr Bank $800; Cr Receivables $800.
The receivable now has a nil balance again.
The credit to the expense reduces this year's expense by $800, so profit increases by $800.

Answer: Dr Receivables $800, Cr Irrecoverable debts expense $800; then Dr Bank $800, Cr Receivables $800. Profit increases by $800.

Exam tips

Read whether the question asks for a debit, a credit, or a net figure. Many marks are lost on the wrong side.
In number entry questions, deduct write-offs from receivables before calculating any percentage allowance.
Treat a recovery as a credit to irrecoverable debts expense, not as revenue.
For multiple response questions, select exactly the stated number of options and check each entry's debit and credit.
Be ready to separate a write-off from a change in allowance. Questions often test both in one scenario.

Practice questions from Receivables and payables

Irrecoverable Debts and Debts Recovered: frequently asked questions

What is the journal entry to write off an irrecoverable debt?

Debit irrecoverable debts expense and credit receivables (or the customer's account). This removes the asset and records the loss in profit or loss.

How do you account for a bad debt recovered?

First reinstate the debt: debit receivables and credit irrecoverable debts expense. Then record the cash: debit bank and credit receivables. The net effect is a debit to bank and a credit to the expense.

What is the difference between a bad debt and an allowance for receivables?

A bad debt is a specific receivable you know will not be paid, so you write it off. An allowance is an estimate for debts that may not be paid. It is a credit balance set against receivables, and only its change goes to profit or loss.

Does a written-off debt reduce sales revenue?

No. The original sale stays in revenue. The loss is shown as an expense, which keeps revenue and the cost of credit risk separate.