Why is "Charging the FULL new provision to the income statement each year, instead of only the change." a common mistake in Irrecoverable debts?

Why it happens: Students forget the provision is cumulative. How to avoid it: Only the **adjustment** (new − existing) is the income statement expense. The existing provision is already on the books from prior years. Source: Edexcel 4AC1 examiner reports highlight this.

Why is "Calculating the provision percentage on receivables BEFORE deducting written-off debts." a common mistake in Irrecoverable debts?

Why it happens: Students apply % to the figure they first see. How to avoid it: Always write off bad debts FIRST, then calculate the provision on the reduced receivables figure. Otherwise you are providing for amounts you've already written off.

Why is "Recording a debt recovery directly to Bank/Income without reinstating the customer's account." a common mistake in Irrecoverable debts?

Why it happens: Shortcut. How to avoid it: Two-step method: (1) Dr Customer, Cr Irrecoverable Debts Recovered to reinstate; (2) Dr Bank, Cr Customer to record the receipt. Leaves a clean audit trail.

Why is "Showing the Provision for Doubtful Debts as a separate asset line, instead of as a deduction from trade receivables." a common mistake in Irrecoverable debts?

Why it happens: Cosmetic error. How to avoid it: On the SOFP, present: Trade Receivables £X, Less: Provision for Doubtful Debts (£Y), Net Trade Receivables £(X−Y). The provision is a CONTRA-asset.

Why is "Treating a DECREASE in the Provision for Doubtful Debts as an expense." a common mistake in Irrecoverable debts?

Why it happens: Students associate provisions with expenses by reflex. How to avoid it: When the provision is reduced, the reduction is INCOME (Dr Provision, Cr Income / Reduction in Provision). This reverses part of last year's expense.

Why is "Mixing up 'write-off' (specific debt confirmed bad) with 'provision' (general estimate of expected bad debts)." a common mistake in Irrecoverable debts?

Why it happens: Both are expense entries. How to avoid it: Write-off = identified, specific debt removed. Provision = general % estimate on remaining receivables. Two distinct events, both required at year-end.

Why is "Treating the provision balance as if it resets to zero each year." a common mistake in Irrecoverable debts?

Why it happens: Students think 'this year's expense' = 'this year's provision'. How to avoid it: The Provision for Doubtful Debts is a SOFP account — its balance carries forward year on year. Only the *change* hits the income statement.

Introduction to Book KeepingPearson Edexcel IGCSE Accounting 4AC1

Irrecoverable debts

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Irrecoverable Debts — Edexcel IGCSE Accounting (4AC1) Detailed Notes

How to handle customers who don't pay — writing off specific bad debts AND creating a general Provision for Doubtful Debts. The clearest application of the prudence concept in the syllabus.

What you’ll learn

Mapped to the Pearson Edexcel IGCSE 4AC1 syllabus (2026 onwards).

Distinguish between an irrecoverable debt and a doubtful debt.
Record the write-off of irrecoverable debts using the appropriate journal entries.
Calculate and record a Provision for Doubtful Debts.
Adjust an existing Provision for Doubtful Debts up or down at the year-end.
Record the recovery of a previously written-off debt.
Present trade receivables on the SOFP net of the Provision for Doubtful Debts.
Explain the link between the treatment of irrecoverable debts and the prudence concept.

Writing off an irrecoverable debt

Specific debt known to be lost — transfer from the customer to an expense account.

When a SPECIFIC customer's debt is known to be uncollectible (bankruptcy, prolonged default, customer disappeared), it is written off.

Journal entry:

Dr Irrecoverable Debts (expense) £X
Cr Customer's account in Sales Ledger £X

Effect:

The customer's account shows nil balance — debt is removed.
Irrecoverable Debts expense increases on the income statement.
Trade receivables on the SOFP decrease.
Profit decreases; capital decreases (via reduced profit).

Write-off recognises the lost collection as an expense; the original sale is NOT reversed.

Source document: typically the Journal — supported by evidence of the customer's bankruptcy or written instruction from management to write off.

Why we don't just credit Sales: writing off doesn't reverse the original sale — the goods were genuinely sold, the sale was genuine, and the income was correctly recognised. The loss is in the COLLECTION of that income, which is a separate expense.

Specific debt → write-off.
Dr Irrecoverable Debts, Cr Customer.
Recognised in the period the debt becomes confirmed irrecoverable.
Affects both income statement AND SOFP.

Provision for Doubtful Debts — the prudence-driven estimate

A general % estimate of receivables that may not pay — recognised in advance of identification.

Even after writing off all SPECIFIC bad debts, the business knows from experience that some of the remaining receivables will not pay. The prudence concept requires recognising this expected loss even though no specific customer has yet been identified.

Method: create a Provision for Doubtful Debts (also called 'Allowance for Irrecoverable Debts' in newer terminology) equal to a percentage of remaining trade receivables.

Example. Trade Receivables (after write-offs) = £25,000. Provision policy: 4%. Required provision = £25,000 × 4% = £1,000.

First-year creation (no prior provision):

Dr Irrecoverable Debts £1,000
Cr Provision for Doubtful Debts £1,000

The full provision becomes an expense in the year it is first created.

Subsequent years — adjustment only: If the existing provision is £900 and the required provision is £1,500:

Adjustment needed = £1,500 − £900 = £600 increase.
Dr Irrecoverable Debts £600
Cr Provision for Doubtful Debts £600

The £900 from last year remains on the SOFP; only the £600 change is the current year's expense.

If the provision is to be reduced (because receivables have fallen, or the policy % has reduced):

Adjustment = required − existing (will be negative).
Dr Provision for Doubtful Debts (existing − required)
Cr Reduction in Provision / Income

A reduction is income — it reverses some of the prior expense.

General % of receivables — not tied to specific customers.
First year: full provision is an expense.
Subsequent years: only the CHANGE is the expense (or income).
Stays on SOFP as a contra-asset year on year.

Year-end procedure — the correct sequence

Write off, then calculate provision, then adjust.

The four-step year-end procedure:

Identify specific irrecoverable debts.
Write off each: Dr Irrecoverable Debts, Cr Customer.
Calculate the required provision on the NEW (reduced) trade receivables.
Adjust the existing Provision for Doubtful Debts up or down.

Numerical example:

Trade receivables before write-offs: £25,500.
Two debts written off totalling £500.
Trade receivables after write-offs: £25,000.
Existing Provision for Doubtful Debts: £900.
Required provision (4%): £25,000 × 4% = £1,000.
Adjustment: £1,000 − £900 = £100 increase.

Year's total expense on Irrecoverable Debts:

Write-offs £500 + Increase in provision £100 = £600.

SOFP presentation:

Current Assets	£
Trade Receivables	25,000
Less: Provision for Doubtful Debts	(1,000)
Net Trade Receivables	24,000

Recovery of a previously written-off debt

Two-step: reinstate the debt, then record the cash receipt.

Occasionally a customer pays after their debt has been written off. The business recognises this windfall as income.

Step 1 — Reinstate the debt:

Dr Customer £X
Cr Irrecoverable Debts Recovered £X (Reinstates the customer's account; recognises income.)

Step 2 — Record the cash receipt:

Dr Bank £X
Cr Customer £X (Settlement received.)

The customer's account opens at £0, is debited £X, credited £X, and closes at £0. The income lands in Irrecoverable Debts Recovered (a separate income account, shown as 'other income' in the income statement).

Why two steps? Provides a clean audit trail. The customer's payment is properly tracked through their personal account before flowing to the bank.

Single-step shortcut (also acceptable):

Dr Bank £X
Cr Irrecoverable Debts Recovered £X

Mark schemes typically accept either method, but the two-step is preferred professional practice.

Recovery = income.
Two-step (preferred): reinstate, then receive.
Single-step (acceptable): direct Bank/Income entry.

Income statement and SOFP presentation

Expense on the IS; net receivables on the SOFP.

Income Statement (extract):

Expenses	£
...	...
Irrecoverable Debts	600
...	...

(Or split: 'Irrecoverable Debts Written Off £500; Increase in Provision for Doubtful Debts £100'.)

If there is recovered income, show separately under 'Other Income':

Other Income	£
Irrecoverable Debts Recovered	400

SOFP (extract):

Current Assets	£
Trade Receivables	25,000
Less: Provision for Doubtful Debts	(1,000)
Net Trade Receivables	24,000
Cash and Bank	...

Link to the prudence concept and a true and fair view

Recognise expected losses promptly; never anticipate gains.

Why does Edexcel test this in such detail? Because the treatment of receivables embodies the prudence concept:

Recognise the loss (the bad debt) IMMEDIATELY when identified.
Recognise expected losses (the provision) on receivables that might go bad — even without specific identification.
Don't anticipate the unexpected recovery of a written-off debt — only recognise it when the cash actually arrives.

This asymmetric treatment — quick to recognise losses, slow to recognise gains — is the hallmark of prudence and contributes to a true and fair view.

Top-band candidates link the treatment back to prudence in evaluation questions. This earns AO3 marks.

How it’s examined

Paper 1: Write-off journal entries (3–4 marks); calculate the provision and its adjustment (4–6 marks); explain the prudence link (3 marks).

Paper 2: Year-end adjustments embedded in the preparation of financial statements — typically 4–8 marks within a larger 25–30 mark question.

Common stems: 'Show the journal entry to write off…', 'Calculate the Provision for Doubtful Debts required…', 'Explain why a Provision for Doubtful Debts is created…', 'State the effect on profit and trade receivables…'

Sources: Pearson Edexcel International GCSE in Accounting (4AC1) Specification — Issue 3; Edexcel 4AC1 Examiner Reports (2022–2024). Last reviewed 2026-05-19.

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Step-by-step worked examples — Irrecoverable debts

Step-by-step solutions to past-paper-style questions on irrecoverable debts, written exactly the way a tutor would explain them at the board.

1Write off an irrecoverable debt
Building confidence• Edexcel 4AC1 style — calculation (4 marks)• write-off, AO1, AO2
Question
L Brown owes the business £800 from a credit sale. He has been declared bankrupt and the debt is now irrecoverable. Show the journal entry to write it off and explain the effect on the financial statements.
Step-by-step solution
1. Step 1
  Writing off transfers the lost amount from the customer's account to an expense account (Irrecoverable Debts / Bad Debts).
Answer
Journal entry:

Dr Irrecoverable Debts £800

Cr L Brown (Sales Ledger) £800 (Write-off of irrecoverable debt owed by L Brown.)

Effect on financial statements:

Income Statement: Irrecoverable Debts expense £800 → reduces profit by £800.

SOFP: Trade Receivables ↓ £800; Capital ↓ £800 (via reduced profit).
Examiner tip
A* candidates explicitly state BOTH effects (income statement AND SOFP). Many students mention only the expense.
2Create a new Provision for Doubtful Debts
Higher• Edexcel 4AC1 style — calculation (5 marks)• provision, AO1, AO2
Question
At the year-end (31 Dec 2026), Aliya's trade receivables total £25,000 AFTER writing off £500 of irrecoverable debts. She wishes to create a provision for doubtful debts at 4% of trade receivables. (a) Calculate the provision needed. (b) Show the journal entry. (c) State the SOFP presentation.
Step-by-step solution
1. Step 1
  Calculate the provision on the receivables figure AFTER any write-offs (because written-off debts are already removed).
2. Step 2
  First-year creation: the full provision is an expense.
Answer
(a) Provision = £25,000 × 4% = £1,000.

(b) Journal:

Dr Irrecoverable Debts (or Increase in Provision) £1,000

Cr Provision for Doubtful Debts £1,000

(c) SOFP extract:

Current Assets £
Trade Receivables 25,000
Less: Provision for Doubtful Debts (1,000)
Net Trade Receivables 24,000
Examiner tip
Apply the percentage to receivables AFTER write-offs — applying it to the pre-write-off figure double-counts the loss. The first-year creation is fully an expense.
3Adjust an existing Provision for Doubtful Debts
Higher• Edexcel 4AC1 style — calculation (6 marks)• provision-adjustment, AO1, AO2
Question
At 31 Dec 2025, the Provision for Doubtful Debts was £900. At 31 Dec 2026, trade receivables are £30,000 (after write-offs of £200 during the year). The provision is to be maintained at 5% of trade receivables. (a) Calculate the new provision required. (b) Calculate the adjustment to the existing provision. (c) Show the journal and the income statement effect.
Step-by-step solution
1. Step 1
  Required provision = 5% × £30,000 = £1,500.
2. Step 2
  Adjustment = New required − Existing = £1,500 − £900 = £600 (increase).
3. Step 3
  Only the INCREASE is an expense, not the full new provision (the £900 was expensed last year).
Answer
(a) Required provision = £30,000 × 5% = £1,500.

(b) Adjustment = £1,500 − £900 = £600 increase.

(c) Journal:

Dr Irrecoverable Debts (Increase in Provision) £600

Cr Provision for Doubtful Debts £600

Income statement effect: Irrecoverable Debts expense £200 (write-off) + £600 (increase in provision) = £800 total expense.

SOFP: Trade Receivables £30,000 less Provision £1,500 = Net Trade Receivables £28,500.
Examiner tip
Top-band candidates correctly identify that only the CHANGE in the provision (not the full provision) hits the income statement each year. If the provision had DECREASED, the difference would be income (Dr Provision, Cr Income).
4Recover a previously written-off debt
Stretch• Edexcel 4AC1 style — multi-part (8 marks)• recovery, AO1, AO2
Question
Last year, J Khan's £400 debt was written off as irrecoverable. This year, Khan unexpectedly pays £400 in full. Record the recovery and explain the income statement and SOFP effects.
Step-by-step solution
1. Step 1
  Two-step process: (a) reinstate the debt in Khan's account (Dr Khan, Cr Bad Debts Recovered or directly Cr Irrecoverable Debts Recovered), then (b) record the receipt (Dr Bank, Cr Khan).
Answer
Step 1 — Reinstate the debt:

Dr J Khan £400

Cr Irrecoverable Debts Recovered (income) £400 (Reinstate previously written-off debt now recovered.)

Step 2 — Record the receipt:

Dr Bank £400

Cr J Khan £400 (Cheque received from J Khan in settlement.)

Net effect on Khan's account: opens at £0, debited £400, credited £400, closes at £0.

Income Statement: Irrecoverable Debts Recovered £400 → other income → increases profit by £400.

SOFP: Bank ↑ £400; Capital ↑ £400 (via increased profit).
Examiner tip
Many candidates skip step 1 (reinstating the debt) and just Dr Bank Cr Irrecoverable Debts Recovered directly. While that produces the same income statement effect, the two-step method is preferred because it leaves an audit trail showing Khan's record of having paid. Mark schemes credit both.
5Distinguish irrecoverable debt from doubtful debt
Getting started• Edexcel 4AC1 style — short-answer (4 marks)• classification, AO1, AO2
Question
Classify each as Irrecoverable (write off now) or Doubtful (include in provision): (a) A customer was declared bankrupt last month — no recovery expected. (b) Many small customers are 60+ days overdue but still paying gradually. (c) A customer's cheque bounced and they have disappeared. (d) Historical data shows ~3% of receivables typically fail to pay.
Step-by-step solution
1. Step 1
  Irrecoverable = specific, confirmed. Doubtful = general expectation.
Answer
(a) Irrecoverable — specific identification.

(b) Doubtful — pattern of risk, no specific failure yet.

(c) Irrecoverable — customer has disappeared = confirmed loss.

(d) Doubtful — general historical estimate, basis for the Provision.
Examiner tip
The trigger word is 'specific'. If a SPECIFIC customer is named and the debt is confirmed lost, write off. General estimates of risk = provision.
6State the effect of each transaction on profit and trade receivables
Building confidence• Edexcel 4AC1 style — short-answer (4 marks)• effects, AO1, AO2
Question
For each event, state the effect on PROFIT and on NET TRADE RECEIVABLES: (a) Writing off £500 of bad debts. (b) Increasing Provision for Doubtful Debts by £200. (c) Receiving £300 from a debt previously written off. (d) Decreasing the Provision by £150.
Step-by-step solution
1. Step 1
  Each action either creates an expense (reduces profit) or income (increases profit) and affects net receivables.
Answer
(a) Profit ↓ £500; Net Receivables ↓ £500.

(b) Profit ↓ £200; Net Receivables ↓ £200 (provision is a contra-asset).

(c) Profit ↑ £300; Bank ↑ £300 (no receivables effect — was already written off).

(d) Profit ↑ £150; Net Receivables ↑ £150 (reduced contra-asset).
Examiner tip
Note that recovery has no effect on Net Receivables — the debt was already written off, so reinstating and receiving brings it to net zero on the receivables side.
7Identify the correct SOFP line for each item
Getting started• Edexcel 4AC1 style — short-answer (4 marks)• presentation, AO1
Question
State on which SOFP line each item appears: (a) Trade Receivables £30,000. (b) Provision for Doubtful Debts £900. (c) Irrecoverable Debts Recovered (income). (d) Net Trade Receivables.
Step-by-step solution
1. Step 1
  (a)–(b) and (d) are SOFP items; (c) is an income-statement item.
Answer
(a) Current Assets — Trade Receivables (gross).

(b) Current Assets — deducted from Trade Receivables (contra-asset).

(c) NOT on SOFP — income line in the Income Statement.

(d) Current Assets — Trade Receivables minus Provision.
Examiner tip
Provision is shown as a deduction on the SOFP, not as a separate liability. Students sometimes wrongly classify it as a liability.
8Calculate the Provision for Doubtful Debts and the change
Building confidence• Edexcel 4AC1 style — calculation (4 marks)• provision, AO1, AO2
Question
At 31 December 2025, the Provision for Doubtful Debts was £1,200. At 31 December 2026, Trade Receivables are £38,000 and the policy is to maintain the provision at 4%. Calculate (a) the required provision, (b) the adjustment, (c) the income-statement effect.
Step-by-step solution
1. Step 1
  Required = 4% × £38,000. Adjustment = Required − Existing.
Answer
(a) Required = £38,000 × 4% = £1,520.

(b) Adjustment = £1,520 − £1,200 = £320 increase.

(c) Income statement: £320 expense (Increase in Provision for Doubtful Debts).
Examiner tip
Only the £320 change hits the income statement — not the full £1,520. The £1,200 from prior year is already on the books.
9Multi-step: write off, provision and total expense
Higher• Edexcel 4AC1 style — multi-part (8 marks)• multi-step, AO1, AO2
Question
At 1 January 2026 the Provision for Doubtful Debts was £600. During 2026: debts written off totalled £400. At 31 December 2026, Trade Receivables (before write-offs) were £25,400 and the policy is to maintain the provision at 5%. Calculate (a) Trade Receivables after write-offs, (b) the required provision, (c) the adjustment, (d) the total Irrecoverable Debts expense for the year, (e) the Net Trade Receivables on the SOFP.
Step-by-step solution
1. Step 1
  Write off FIRST; then calculate the provision on the remaining receivables.
Answer
(a) Trade Receivables after write-offs = £25,400 − £400 = £25,000.

(b) Required provision = £25,000 × 5% = £1,250.

(c) Adjustment = £1,250 − £600 = £650 increase.

(d) Total Irrecoverable Debts expense = £400 write-offs + £650 increase in provision = £1,050.

(e) Net Trade Receivables = £25,000 − £1,250 = £23,750 (current asset on SOFP).
Examiner tip
Five distinct calculations, but they hang together. Write off → calc provision on the REDUCED figure → calc adjustment → total expense → net receivables. Mark schemes give a mark per stage.

Key Formulae — Irrecoverable debts

The formulae you need to memorise for irrecoverable debts on the Pearson Edexcel IGCSE 4AC1 paper, with every variable defined in plain English and a note on when to use it.

Provision for Doubtful Debts — calculation
$Required Provision = Trade Receivables (after write-offs) × Provision %$
$Trade Receivables (after write-offs)$
Total amount owed by customers AFTER deducting any debts written off during the year
$Provision %$
Percentage estimate of receivables likely to prove irrecoverable (e.g., 4%)
When to use
At year-end to establish the desired level of the Provision for Doubtful Debts (also called Allowance for Irrecoverable Debts).
Example
£25,000 × 4% = £1,000 required provision.
Adjustment to the Provision for Doubtful Debts
$Adjustment = Required Provision − Existing Provision$
$Required Provision$
The provision needed at the year-end
$Existing Provision$
Balance brought forward from the previous year-end
When to use
At year-end (after the first year) to find how much to increase or decrease the provision. Positive = increase (expense); negative = decrease (income).
Example
Required £1,500 − Existing £900 = £600 increase (expense in IS).
Total Irrecoverable Debts expense for the year
$Total Irrecoverable Debts Expense = Debts Written Off + Increase in Provision − Decrease in Provision − Debts Recovered$
$Debts Written Off$
Amounts removed from receivables during the year as irrecoverable
$Increase in Provision$
Positive adjustment to the provision
$Decrease in Provision$
Negative adjustment to the provision (treated as a credit/income)
$Debts Recovered$
Receipts from debts previously written off (treated as income)
When to use
When preparing the income statement and asked to show a single 'Irrecoverable Debts' figure.
Example
Write-offs £200 + Increase in provision £600 = £800 net expense. (Recoveries can be shown separately as other income or netted off.)
Net trade receivables on the SOFP
$Net Trade Receivables = Trade Receivables − Provision for Doubtful Debts$
$Trade Receivables$
Total of customer balances in the Sales Ledger after write-offs
$Provision for Doubtful Debts$
Contra-asset reflecting the estimated unrecoverable portion
When to use
Always — for SOFP presentation of trade receivables.
Example
£25,000 − £1,000 = £24,000 net.

Key Definitions and Keywords — Irrecoverable debts

Definitions to memorise and the exact keywords mark schemes credit for irrecoverable debts answers — sharpened from recent examiner reports for the 2026 Pearson Edexcel IGCSE 4AC1 sitting.

Irrecoverable debt (Bad debt)
Examiner keyword
A debt that is no longer expected to be paid by the customer — written off as an expense in the period it becomes irrecoverable.
Write-off
Examiner keyword
The process of removing an irrecoverable debt from the receivables account by debiting Irrecoverable Debts and crediting the customer's account.
Provision for Doubtful Debts (Allowance for Irrecoverable Debts)
Examiner keyword
A contra-asset account that recognises the estimated portion of trade receivables that may not be collected, even though no specific debts have yet been identified as bad. Driven by the prudence concept.
Doubtful debt
A debt that the business suspects may not be paid, but has not yet identified as definitely irrecoverable.
Recovery of a previously written-off debt
Examiner keyword
When a customer pays a debt that had previously been written off as irrecoverable. The amount is recognised as income (Irrecoverable Debts Recovered) in the income statement.
Prudence concept (link)
The accounting concept that justifies creating a Provision for Doubtful Debts — assets and profits should not be overstated; expected losses should be recognised promptly.

Common Mistakes and Misconceptions — Irrecoverable debts

The traps other students keep falling into on irrecoverable debts questions — taken from recent Pearson Edexcel IGCSE 4AC1 examiner reports and mark schemes — and how to avoid them.

✕Charging the FULL new provision to the income statement each year, instead of only the change.
Edexcel 4AC1 examiner reports highlight this.
Why it happens
Students forget the provision is cumulative.
How to avoid it
Only the adjustment (new − existing) is the income statement expense. The existing provision is already on the books from prior years.
✕Calculating the provision percentage on receivables BEFORE deducting written-off debts.
Why it happens
Students apply % to the figure they first see.
How to avoid it
Always write off bad debts FIRST, then calculate the provision on the reduced receivables figure. Otherwise you are providing for amounts you've already written off.
✕Recording a debt recovery directly to Bank/Income without reinstating the customer's account.
Why it happens
Shortcut.
How to avoid it
Two-step method: (1) Dr Customer, Cr Irrecoverable Debts Recovered to reinstate; (2) Dr Bank, Cr Customer to record the receipt. Leaves a clean audit trail.
✕Showing the Provision for Doubtful Debts as a separate asset line, instead of as a deduction from trade receivables.
Why it happens
Cosmetic error.
How to avoid it
On the SOFP, present: Trade Receivables £X, Less: Provision for Doubtful Debts (£Y), Net Trade Receivables £(X−Y). The provision is a CONTRA-asset.
✕Treating a DECREASE in the Provision for Doubtful Debts as an expense.
Why it happens
Students associate provisions with expenses by reflex.
How to avoid it
When the provision is reduced, the reduction is INCOME (Dr Provision, Cr Income / Reduction in Provision). This reverses part of last year's expense.
✕Mixing up 'write-off' (specific debt confirmed bad) with 'provision' (general estimate of expected bad debts).
Why it happens
Both are expense entries.
How to avoid it
Write-off = identified, specific debt removed. Provision = general % estimate on remaining receivables. Two distinct events, both required at year-end.
✕Treating the provision balance as if it resets to zero each year.
Why it happens
Students think 'this year's expense' = 'this year's provision'.
How to avoid it
The Provision for Doubtful Debts is a SOFP account — its balance carries forward year on year. Only the change hits the income statement.

Practice questions

Exam-style questions with step-by-step worked solutions. Try one before checking the method.

Past paper style quiz

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Irrecoverable debts

Short Study Notes in the form of Slides

Short Study Notes — Irrecoverable debts

Detailed Notes

What you’ll learn

How it’s examined

1Write off an irrecoverable debt

2Create a new Provision for Doubtful Debts

3Adjust an existing Provision for Doubtful Debts

4Recover a previously written-off debt

5Distinguish irrecoverable debt from doubtful debt

6State the effect of each transaction on profit and trade receivables

7Identify the correct SOFP line for each item

8Calculate the Provision for Doubtful Debts and the change

9Multi-step: write off, provision and total expense

Provision for Doubtful Debts — calculation

Adjustment to the Provision for Doubtful Debts

Total Irrecoverable Debts expense for the year

Net trade receivables on the SOFP

Irrecoverable debt (Bad debt)

Write-off

Provision for Doubtful Debts (Allowance for Irrecoverable Debts)

Doubtful debt

Recovery of a previously written-off debt

Prudence concept (link)

✕Charging the FULL new provision to the income statement each year, instead of only the change.

✕Calculating the provision percentage on receivables BEFORE deducting written-off debts.

✕Recording a debt recovery directly to Bank/Income without reinstating the customer's account.

✕Showing the Provision for Doubtful Debts as a separate asset line, instead of as a deduction from trade receivables.

✕Treating a DECREASE in the Provision for Doubtful Debts as an expense.

✕Mixing up 'write-off' (specific debt confirmed bad) with 'provision' (general estimate of expected bad debts).

✕Treating the provision balance as if it resets to zero each year.

Practice questions

Past paper style quiz

Assess your understanding