Freewheel Repairs services bicycles for a courier firm on credit. One customer, owing $270 for work completed in March, has moved away and cannot be traced,...

Writing off an irrecoverable debt does two things at once: it removes an asset that will never turn into cash, and it recognises the loss as an expense of the period in which the debt is judged uncollectable.

The $270 is currently sitting as a debit balance in trade receivables. To remove it, trade receivables must be credited. The other side of the entry is a debit to the irrecoverable debts account, an expense which is then transferred to the income statement and reduces profit. The correct pair is therefore to debit irrecoverable debts and credit trade receivables.

Debiting trade receivables and crediting irrecoverable debts is the same entry reversed: it would increase the amount owed and credit the income statement, turning a loss into income. Crediting bank is wrong because no money has moved; nothing has been received and nothing has been paid out, which is precisely the problem. Debiting the allowance for irrecoverable debts confuses the two ideas: the allowance is an estimate against receivables in general, while this is a specific, identified balance being removed. If an allowance is carried, it is adjusted separately at the year end after the write off has been made.

Exam reminder: no cash entry ever appears in a write off. Cash appears only when a debt written off is later recovered.