prepare ledger accounts and journal entries to record irrecoverable debts

4.4 Irrecoverable Debts & Provision for Doubtful Debts

What Are Irrecoverable Debts?

Imagine you lend your friend a pack of stickers 🎒. They promise to return them, but one day they say they’re gone. That’s an irrecoverable debt – a debt that can’t be collected.

Why Do We Need a Provision?

Not every customer will pay on time. To keep our books honest, we set aside a little money called a provision for doubtful debts. It’s like putting a safety net under a circus performer.

Key Accounts Involved

• Accounts Receivable (A/R) – money owed to us.
• Provision for Doubtful Debts – the safety net.
• Bad Debt Expense – the cost of the net.
• Write‑Off – when we decide the debt is truly gone.

Step‑by‑Step Journal Entries

1. Estimate the provision (e.g., 5% of A/R).

   Journal entry:

   Date	Account	Debit	Credit
   2026‑04‑26	Bad Debt Expense	$5,000	$0
   	Provision for Doubtful Debts	$0	$5,000

2. Write‑off a bad debt when it’s confirmed irrecoverable.

   Journal entry:

   Date	Account	Debit	Credit
   2026‑04‑26	Provision for Doubtful Debts	$2,000	$0
   	Accounts Receivable	$0	$2,000

Ledger Accounts Example

Below is a simplified ledger for the month of April.

Quick Recap Quiz

1. What account is debited when we estimate the provision? Answer: Bad Debt Expense.
2. Which account is credited when a debt is written off? Answer: Accounts Receivable.
3. Why do we use a provision instead of writing off immediately? Answer: To match expenses with the period they relate to.

Great job! 🎉 Keep practicing and you’ll master doubtful debts in no time.