Last reviewed: July 2026.
An allowance for doubtful debts is a loss allowance against trade receivables. Under IFRS 9, entities recognise expected credit losses rather than waiting until a customer has definitely defaulted.
The accounting combines forward-looking estimation with practical ledger entries. This guide explains the simplified approach, ageing matrices, write-offs, recoveries and reconciliation controls.
From bad-debt provision to expected credit losses
Traditional bookkeeping often described a percentage provision against receivables. IFRS 9 uses an expected-credit-loss model that estimates cash shortfalls using reasonable and supportable information.
The allowance is a contra-asset account. Receivables remain recorded at gross carrying amount, while the loss allowance reduces the amount presented in the statement of financial position.
The simplified approach for trade receivables
For qualifying trade receivables, entities commonly use the simplified approach and recognise lifetime expected credit losses from initial recognition. They do not track a separate twelve-month stage for each ordinary trade balance.
A provision matrix is a practical method, but it must reflect the entity’s own customer groups, historical experience, current conditions and reasonable forecasts.
Basic allowance journal entry
| Account | Debit | Credit |
|---|---|---|
| Impairment loss or expected credit loss expense | Increase in allowance | |
| Loss allowance for trade receivables | Increase in allowance |
When the required closing allowance exceeds the existing credit balance, the difference is charged as expense. If the required allowance decreases, the difference is normally reversed through profit or loss, subject to the facts.
Worked closing-adjustment example
Assume the existing allowance is 8,000 and the year-end expected-credit-loss calculation is 12,500. The required increase is 4,500.
| Entry | Debit | Credit |
|---|---|---|
| Expected credit loss expense | 4,500 | |
| Loss allowance | 4,500 |
The statement of financial position presents gross trade receivables less the 12,500 allowance. The ledger should retain the gross customer balances unless a specific amount is written off.
Building an ageing matrix
| Age bucket | Exposure | Example loss rate | Illustrative ECL |
|---|---|---|---|
| Current | 300,000 | 0.5% | 1,500 |
| 1–30 days overdue | 80,000 | 2% | 1,600 |
| 31–90 days overdue | 35,000 | 8% | 2,800 |
| More than 90 days | 15,000 | 35% | 5,250 |
The rates are illustrative only. Management should segment customers where risk differs, for example by geography, product, security, public-sector status or economic sensitivity.
Forward-looking adjustments
Historical default rates may not represent conditions at the reporting date. The matrix should incorporate information about unemployment, interest rates, customer-sector stress, collection trends and other relevant forecasts.
Adjustments should be supportable and avoid double counting. A documented overlay is stronger than an unexplained management percentage.
Specific high-risk balances
Some receivables require individual assessment because of disputes, insolvency, litigation, repayment plans, concentration or significant deterioration. The expected cash shortfall should consider timing, collateral and realistic recovery scenarios.
An individually assessed balance should not also be included in a pooled calculation in a way that counts the same risk twice.
Writing off an uncollectible receivable
A write-off removes the gross receivable when there is no reasonable expectation of recovery. It does not necessarily mean collection activity or legal rights must cease.
| Account | Debit | Credit |
|---|---|---|
| Loss allowance | Amount written off | |
| Trade receivables | Amount written off |
If no adequate allowance exists, part of the write-off may create an additional impairment expense. The policy and approval authority should be documented.
Recovery after write-off
If cash is later recovered, entities need a consistent policy that reflects the ledger structure. One approach reinstates the receivable and allowance before recording cash; another records the recovery directly in an appropriate impairment or recovery account.
The financial-statement effect should be clear, and the recovery should not be recorded as ordinary sales revenue.
Difference between allowance and write-off
| Allowance | Write-off |
|---|---|
| Estimate of expected loss across recognised receivables | Removal of a specific gross receivable |
| Customer balance remains in the ledger | Customer balance is derecognised from the ledger |
| Updated at each reporting date | Requires evidence and approval |
| Forward-looking measurement | Based on no reasonable expectation of recovery |
Keeping these processes separate preserves visibility over gross exposure and collection performance.
Reconciliation of the loss allowance
A strong working paper reconciles opening allowance to closing allowance through new impairment, reversals, write-offs, recoveries, acquisitions, disposals and foreign-exchange effects where applicable.
The closing figure should agree to the general ledger, receivables subledger, ageing report and financial-statement disclosure.
Data and control requirements
- Reconcile the ageing report to the general ledger.
- Validate invoice dates, due dates and customer classifications.
- Remove credit balances and non-trade items from inappropriate pools.
- Document default definitions and write-off criteria.
- Back-test previous estimates against actual collections.
- Approve forward-looking overlays and significant judgements.
- Restrict changes to loss rates and retain an audit trail.
Poor source data can produce a precise-looking but unreliable model. Controls over the receivables system are therefore part of the accounting estimate.
Presentation and disclosure
Financial statements should explain the measurement approach, assumptions, credit-risk concentrations and movements in the loss allowance as required by the applicable standards.
Disclosures should connect the estimate to the business. Boilerplate descriptions are less useful than information about customer segments, overdue exposure and the factors that changed the allowance.
Related Accounting Support guides
- Bad Debts and Expected Credit Losses under IFRS 9
- Doubtful Debts and Expected Credit Losses under IFRS 9
- Bad Debt Write-Off Journal Entries and Recoveries
Official sources
Key takeaway
An allowance for doubtful debts is a forward-looking estimate supported by receivables data, historical outcomes and current expectations. Separate estimation, write-off and recovery entries, then reconcile every movement to the ledger.