Sometimes it happens so that you are unable to collect the receivable and as it happens, you should consider writing it down. Whenever your client has financial difficulties, it’s one of the conditions that should make you doubt the ability of the customer to actually pay up what they owe.
“Writing down” means that you will still keep the receivable on the balance sheet just that it’s written down on another account effectively giving an effect of say a zero receivable for the specific client. Say you’d have a receivable in the amount of 500 and you have doubts about this being collectible. So you decide to write it down. You will keep the receivable on the ledger, but add a negative account called for an example “Allowance for doubtful receivables” for the amount of the receivable itself, 500.
| # | Debit-Credit | Account name | Amount |
| 1 | Debit | Receivables write-down expense account | 500 |
| Credit | Allowance for doubtful receivables | 500 |
Effectively to write off a receivable from the balance sheet, you’d apply the same entry only that you’d do it in a full amount the receivable is recognized in and take it off from the receivables ledger as well.