Irrecoverable debts

In this lesson

1. 0:00 Introduction to irrecoverable debts
2. 0:24 Writing off irrecoverable debts
3. 0:54 Journal entry for irrecoverable debts
4. 2:14 Worked example: initial sale and write-off
5. 3:03 Recovering previously written-off debts
6. 4:28 Worked example: partial debt recovery

About this lesson

This is essential for Financial Accounting and Financial Reporting papers, where you need to correctly record bad debts as expenses and adjust receivables. The video walks you through the journal entries for initial write-offs and partial or full recoveries, using worked examples to show how these transactions flow through the statement of profit and loss and statement of financial position. Irrecoverable debts occur when customers can't pay—often due to bankruptcy—and must be removed from your receivables. Rather than reversing the original sale, you record the debt as an expense (debit irrecoverable debts, credit trade receivables), reflecting the cost of not receiving cash. The original sale stays in your records; only the uncollectable portion is written off. Sometimes a debt written off in one year is partially or fully recovered in a later year. When this happens, you don't go back and change prior-year entries. Instead, you record the cash received (debit bank) and credit the irrecoverable debts expense account to reduce the cost recognised in the current year. This means the net effect on profit across both years reflects only the amount actually lost.

Duration: 6m