Last reviewed: July 2026.
Writing off an irrecoverable receivable is different from estimating expected credit losses. The write-off removes a specific balance when there is no reasonable expectation of recovery, while an allowance reflects expected losses before that point.
This guide explains the evidence needed, journal entries with and without an allowance, later recoveries, disputed balances, presentation and controls.
When a receivable is written off
A receivable is written off when there is no reasonable expectation of recovery, based on evidence such as insolvency, failed enforcement, the debtor’s disappearance, a settlement that extinguishes the balance or other documented circumstances. A write-off removes the gross receivable from the accounts.
Being overdue is not automatically enough. Overdue balances may still have expected recoveries and therefore require an allowance rather than immediate removal. Credit policy should define approval levels, evidence and escalation so that write-offs are not used to hide weak collection activity.
Write-off and expected credit loss are different
An expected credit loss allowance is recognised before a specific balance becomes irrecoverable. It reflects probability-weighted cash shortfalls and reduces the net carrying amount of receivables. A write-off occurs later when recovery is no longer reasonably expected.
If a loss allowance already covers the balance, the write-off normally uses the allowance and does not create a second expense. If no adequate allowance exists, the uncovered amount affects profit or loss. The subledger and allowance calculation must therefore be connected.
Basic journal entries
When a specific receivable of 4,000 is irrecoverable and no allowance exists, debit irrecoverable debt expense 4,000 and credit trade receivables 4,000. If an allowance already covers the full amount, debit loss allowance 4,000 and credit trade receivables 4,000.
If the allowance covers only 3,200, debit the allowance 3,200, debit impairment expense 800 and credit trade receivables 4,000. Account names vary, but the economic result should remove the gross receivable and avoid charging the same loss twice.
Recoveries after a write-off
A customer may pay after a debt has been written off. The recovery is recognised when cash is received. A common entry is debit cash and credit bad debt recovery or impairment expense, depending on the chart of accounts and reporting policy.
Some systems first reinstate the receivable and then record collection to preserve customer history. Either method should create a clear audit trail and should not distort current sales revenue. Recoveries should be monitored because repeated recoveries may indicate premature write-off decisions.
Credit notes, disputes and write-offs
A genuine sales return, pricing error or service dispute is not automatically a bad debt. It may require a credit note and reduction of revenue rather than an impairment expense. The underlying reason must be investigated before the ledger entry is approved.
Similarly, a negotiated settlement may contain both a commercial price adjustment and a credit loss. Documentation should distinguish the components. Tax and indirect-tax treatment varies by jurisdiction and should be confirmed separately from the financial reporting entry.
Worked receivables example
A customer owes 10,000. The entity previously recognised a lifetime expected credit loss allowance of 6,500. After liquidation, only 1,000 is expected to be recovered and later received. The remaining 9,000 is written off: debit allowance 6,500, debit impairment expense 2,500 and credit receivables 9,000.
The retained 1,000 receivable is cleared when cash arrives. If the full 10,000 had been written off and 1,000 was later unexpectedly recovered, the receipt would be recorded as a recovery rather than revenue from a new sale.
Presentation and disclosure
Trade receivables are presented net of the loss allowance. The write-off reduces the gross balance and the allowance used against it. Material impairment expense, estimation methods, credit-risk information and movements in loss allowances may require disclosure under the applicable reporting framework.
Management should reconcile opening gross receivables and allowances to closing balances. The reconciliation should explain new credit sales, cash collections, write-offs, recoveries, allowance movements, foreign exchange and business combinations.
Controls over bad debt decisions
Effective controls include aged-receivables review, customer credit limits, dispute logs, documented collection attempts, legal or insolvency evidence, independent approval and segregation between collection staff and journal posting. Large or related-party write-offs require enhanced review.
Data analytics can identify repeated write-offs, unusual credit notes, customers reopened after write-off, manual journals near period end and balances written off soon after sale. These indicators help prevent both delayed recognition and improper removal of receivables.
Month-end write-off workflow
At month end, collection staff should propose balances for write-off with supporting evidence, while finance checks the customer account, credit notes, receipts after period end and the existing loss allowance. An authorised manager approves the accounting decision, and a separate user posts the journal and closes or flags the customer account.
The write-off list should be compared with the expected credit loss model. Large differences may show that risk assumptions, ageing buckets or collection data need improvement. Management should also review whether the customer can receive new credit and whether legal recovery remains economically justified.
Practical review checklist
- Document why recovery is no longer reasonably expected.
- Separate credit losses from sales returns and pricing disputes.
- Check the existing loss allowance before posting an expense.
- Remove the gross receivable without double-counting the loss.
- Record later recoveries through a clear audit trail.
- Confirm jurisdiction-specific tax and indirect-tax treatment.
- Reconcile the receivables subledger and allowance movement.
- Require independent approval for material or unusual write-offs.
Related Accounting Support guides
- Bad debts and expected credit losses
- Doubtful debts and IFRS 9 ECL
- Receivables collection period analysis
Authoritative references
This educational guide explains general accounting principles. Apply the reporting framework, law and market rules relevant to the entity and jurisdiction.