1. Risk of Credit Revenue
When a business sells goods or services on credit, it risks some customers failing to pay their invoices due to insolvency, legal disputes, or liquidation.
2. The Direct Write-Off Method
When a specific customer balance is confirmed to be completely uncollectible, it must be removed from the accounting records immediately. This reduces the asset value and records an immediate loss.
Date         Account Titles & Explanation          Ref       Debit ($)    Credit ($)
-------------------------------------------------------------------------------------
2026-12-31   Irrecoverable Debts Expense           6510            850
                Accounts Receivable (Customer X)   1050                       850
             (To write off the uncollectible balance of 
              Customer X due to bankruptcy)

3. Subsequent Recovery of Bad Debts
If a written-off customer unexpectedly pays their bill in a later period, the transaction requires a two-step entry:
  1. Re-establish the customer account: Debit Accounts Receivable | Credit Bad Debts Recovered (Income).
  2. Record the cash receipt: Debit Cash | Credit Accounts Receivable
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