Syllabus Edition
First teaching 2025
First exams 2027
Irrecoverable Debts Recovered (Cambridge (CIE) IGCSE Accounting): Revision Note
Exam code: 0452 & 0985
Irrecoverable debts recovered
Can irrecoverable debt that have been written off be recovered?
It is possible that a business receives a payment from a customer for a debt that has already been written off
The payment could be for the full amount or part of the amount
This can happen if:
the business manages to contact the customer
the customer makes an unexpected payment
the money is retrieved using debt collection services
How do I record the recovery of irrecoverable debts written off in the ledger accounts?
The book of prime entry for the recovery of debts written off is the cash book
There are two methods for recording the recovery of debts written off
One method is usually used if the recovery occurs within the same financial period as the debts being written off
The debt is added back to the relevant trade receivables account
Debit the trade receivables account in the sales ledger with the amount received
Credit the debts recovered account
The payment then is recorded as normal
Debit the cash or bank account
Credit the trade receivables account
The other method is usually used if the debt was written off in a previous financial period
The sales ledger is not used
Debit the cash or bank account
Credit the debts recovered account
Examiner Tips and Tricks
You can use either method in an exam question.
How does the recovery of debts written off affect the profit for the year?
Recovery of debts written off increases profit for the year
It can be treated as an income to the business
There are two options for dealing with debts recovered at the end of the year
The balance in the debts recovered account can be transferred to the irrecoverable debts account to reduce that balance
This reduced balance is then transferred as an expense to the statement of profit or loss
This method is usually used if the recovery occurs within the same financial period as the debts being written off
Or the balance in the debts recovered account can be transferred as an income directly to the statement of profit or loss
This method is usually used if the debt was written off in a different financial period
This method is also used if the balance in the debts recovered account is bigger than the balance in the irrecoverable debts account
Worked Example
Tim sells goods on credit. Tim maintains a full set of accounting records, and his financial year ends on 29 February 2024.
Henry, a customer, had a balance of $750 owing to Tim. On 3 May 2023, Henry’s balance of $750 was written off by Tim as irrecoverable debt after six months of failed attempts at contacting Henry. On 1 December 2023, Tim received a cheque for $300 from Henry. No other debts were written off, and no other debts were recovered in that financial year.
Record the information in the irrecoverable debts account and the debts recovered account. Close the accounts at the end of the financial year by balancing or by making a transfer to an appropriate account.
Answer:
Post the written off debt, $750, to the debit side of the irrecoverable debts account as it is an expense
Label the entry as Henry
Post the recovered debt, $300, to the credit side of the debts recovered account as it is an income
Label the entry as bank or Henry, both are allowed
At the end of the year transfer the balances to the statement of profit or loss
One option is to transfer the balances separately
Tim
Irrecoverable Debts Account
Date | Details | $ | Date | Details | $ |
2023 May 3 |
Henry |
750 | 2024 Feb 29 |
Statement of profit or loss |
750 |
750 | 750 |
Tim
Debts Recovered Account
Date | Details | $ | Date | Details | $ |
2024 Feb 29 |
Statement of profit or loss |
300 | 2023 Dec 1 |
Bank (or Henry) |
300 |
300 | 300 |
Alternatively, transfer the balance from the debts recovered account to the irrecoverable debts account and then close that account by transferring the balance to the statement of profit or loss
Tim
Debts Recovered Account
Date | Details | $ | Date | Details | $ |
2024 Feb 29 |
Irrecoverable debts |
300 | 2023 Dec 1 |
Bank (or Henry) |
300 |
300 | 300 |
Tim
Irrecoverable Debts Account
Date | Details | $ | Date | Details | $ |
2023 May 3 |
Henry |
750 | 2024 Feb 29 |
Debts recovered |
300 |
| Feb 29 | Statement of profit or loss | 450 | ||
750 | 750 |
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