Bad debt expense vs write-off
Each, defined
Bad debt expense
Bad debt expense — The P&L charge that builds the allowance for credit losses — the provision, not the write-off.
Write-off
Write-off — Removing an uncollectible receivable against the allowance for credit losses — under the allowance method it has no P&L effect; the expense was taken in the provision.
Side by side
| Bad debt expense | Write-off | |
|---|---|---|
| What it is | An estimate across receivables | A specific uncollectible invoice |
| P&L effect | Yes | No (allowance method) |
| Account credited | Allowance for credit losses | Accounts receivable |
Two entries, one loss
An aging of $128,000 requires a $7,700 allowance; topping it up from $2,500 is $5,200 of bad debt expense. Writing off a $3,200 invoice later uses the allowance and leaves net receivables, $120,300, unchanged.
| Bad debt expense | Write-off | |
|---|---|---|
| Entry | Debit credit loss expense, credit allowance | Debit allowance, credit receivable |
| Hits the P&L | Yes | No |
| Changes net receivables | Yes — reduces them | No |
| Timing | Each period-end, from the aging | When an invoice is uncollectible |
How they relate
Under the allowance method the loss is recognized before anyone knows which customer will not pay, as an estimate across the receivables. The write-off later names the customer and uses up that estimate.
The direct write-off method collapses the two into one entry at write-off. It is required for US tax but acceptable under GAAP only when the difference is immaterial.
Questions
- Does a write-off create an expense?
- Only under the direct write-off method. Under the allowance method, the expense was recognized when the allowance was built.
- What if a written-off customer pays?
- Reinstate the receivable and allowance, then record the cash.
See it computed
Worked through: the calculators, the journal entries and the tools that use these terms.
- Journal entry for bad debt expenseUnder the allowance method, at each period-end debit Credit loss expense (bad debt expense) and credit Allowance for credit losses for the amount needed to bring the allowance to the expected loss on open receivables.Entry
- Journal entry for writing off accounts receivableTo write off an uncollectible invoice under the allowance method, debit Allowance for credit losses and credit Accounts receivable. If the customer later pays, reinstate the receivable (debit Accounts receivable, credit Allowance) and record the cash.Entry
Definitions are the glossary’s, generated from the same documents. Figures in the examples are computed by tested functions, not typed. General information for US companies under US GAAP, not accounting or tax advice.