ECL journal entries

The accounting for expected credit losses comes down to a handful of journal entries, but getting them in the right accounts matters for presentation and disclosure. This guide sets out each ECL journal entry, from first recognising an allowance to writing off and recovering a debt, with the special cases of stage 3 interest and FVOCI debt.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. 3 minute read.

Short answer

ECL journal entries record the loss allowance and its movements. Increasing the allowance debits an impairment loss in profit or loss and credits the loss allowance, which is deducted from the asset; decreasing it does the reverse. A write-off debits the allowance and credits the receivable, with no effect on profit if the loss was fully provided for. Recoveries after write-off are credited to profit or loss. For debt instruments at fair value through OCI, the allowance is recognised in OCI rather than reducing the carrying amount.

At a glance

Increase allowance
Dr impairment loss, Cr loss allowance
Decrease allowance
Dr loss allowance, Cr impairment gain
Write-off
Dr loss allowance, Cr asset
Recovery after write-off
Dr cash, Cr profit or loss
FVOCI debt
Allowance in OCI
Presentation
Impairment as a separate line
ECL journal entriesIncrease allowance: Dr impairment loss, Cr loss allowance; Decrease allowance: Dr loss allowance, Cr impairment gain; Write-off: Dr loss allowance, Cr asset; Recovery after write-off: Dr cash, Cr profit or loss; FVOCI debt: Allowance in OCI; Presentation: Impairment as a separate line.KEY FACTS AT A GLANCEECL journal entriesIncrease allowanceDr impairment loss, Crloss allowanceDecrease allowanceDr loss allowance, Crimpairment gainWrite-offDr loss allowance, CrassetRecovery after write-offDr cash, Cr profit orlossFVOCI debtAllowance in OCIPresentationImpairment as a separatelineTax BakersECL journal entriesIncrease allowance: Dr impairment loss, Cr loss allowance; Decrease allowance: Dr loss allowance, Cr impairment gain; Write-off: Dr loss allowance, Cr asset; Recovery after write-off: Dr cash, Cr profit or loss; FVOCI debt: Allowance in OCI; Presentation: Impairment as a separate line.KEY FACTS AT A GLANCEECL journal entriesIncrease allowanceDr impairment loss, Cr loss allowanceDecrease allowanceDr loss allowance, Cr impairment gainWrite-offDr loss allowance, Cr assetRecovery after write-offDr cash, Cr profit or lossFVOCI debtAllowance in OCIPresentationImpairment as a separate lineTax Bakers
Key facts at a glance, as set out in this guide.

What are the main ECL journal entries?

Core ECL journal entries (CU)Core ECL journal entries (CU)Recognise or increase the allowanceDebitCreditDr Impairment loss (P&L)7,000.00Cr Loss allowance7,000.00Write off an uncollectable loanDebitCreditDr Loss allowance40,000.00Cr Loan receivable40,000.00Recover cash after write-offDebitCreditDr Cash3,000.00Cr Impairment gain (P&L)3,000.00
Write-offs use the allowance; recoveries go to profit or loss.

A worked sequence of ECL journal entries

EventEntryCU
Year 1: loan of 100,000 made; 12-month ECLDr Impairment loss, Cr Loss allowance1,000
Year 2: credit risk increases significantly; lifetime ECL 8,000Dr Impairment loss, Cr Loss allowance7,000
Year 3: default; lifetime ECL 40,000Dr Impairment loss, Cr Loss allowance32,000
Year 3: interest on the net amount, 10% x 60,000Dr Loan, Cr Interest revenue6,000
Year 4: no further recovery expected on 40,000Dr Loss allowance, Cr Loan40,000
Year 5: 3,000 unexpectedly recoveredDr Cash, Cr Impairment gain in profit or loss3,000

Total charged to profit or loss over the life of the loan is 40,000 less the 3,000 recovery. The write-off itself has no effect on profit, because the loss was provided for in years 1 to 3.

The same pattern applies to trade receivables under the simplified approach: the allowance is adjusted each period, write-offs use it, and recoveries go to profit or loss.

How are ECL amounts presented?

IFRS requires impairment losses, including reversals, determined under IFRS 9 to be presented as a separate line item in profit or loss. The loss allowance is deducted from the gross carrying amount of financial assets at amortised cost; the allowance on loan commitments and financial guarantees is a provision. Many companies present the impairment line within operating expenses; banks show it below net operating income.

How do journal entries differ for FVOCI debt instruments?

A bond measured at fair value through OCI is carried at fair value, so the allowance does not reduce its carrying amount. The ECL charge is recognised in profit or loss with the credit in OCI: Dr Impairment loss, Cr OCI. The total change in fair value is then split between the credit loss in profit or loss and the remaining fair value movement in OCI.

Why does stage 3 change interest revenue?

Once an asset is credit-impaired, interest revenue is calculated on the amortised cost, net of the allowance: 10% of 60,000 in the example, not 10% of 100,000. Some companies record interest on the gross amount and a matching adjustment through the allowance; the net result in interest revenue must be the same.

How does ECL affect the cash flow statement and tax?

The impairment charge is a non-cash item, added back in the indirect method of the cash flow statement; write-offs have no cash effect either. Where tax relief is given only when a debt is written off, the allowance creates a deductible temporary difference and usually a deferred tax asset; see temporary differences.

What about modifications?

When a loan's terms are modified without derecognition, the gross carrying amount is recalculated as the present value of the new cash flows at the original effective interest rate, with a modification gain or loss in profit or loss, and the allowance is then remeasured. See modifications of financial assets, credit-impaired assets and ECL disclosures under IFRS 7.

Need help applying the standards?

Our Chartered Accountants help finance teams and students apply IFRS and US GAAP to real transactions.

Book a call Chat on WhatsApp

Questions people ask

What is the journal entry to recognise ECL?

Debit impairment loss in profit or loss and credit the loss allowance, which is deducted from the asset.

What is the journal entry for a write-off under IFRS 9?

Debit the loss allowance and credit the receivable or loan; there is no profit or loss effect if the loss was fully provided for.

How are recoveries after write-off recorded?

Debit cash and credit profit or loss, usually within the impairment line.

How is ECL recorded on FVOCI debt instruments?

Debit impairment loss in profit or loss and credit OCI; the allowance does not reduce the fair value carrying amount.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 9 Financial Instruments

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

ECLCredit-impaired assets and stage 3ECLECL disclosures under IFRS 7IFRS 9Modification of financial assets and liabilities under IFRS 9

More in ECL

Previous in this topicHow auditors test ECLTopicAll 40 guides in ECL

This guide is general information. It is not tax or legal advice for your situation.