#Bad debt expense how to#

Recognizing bad debts requires an offsetting reduction to accounts receivable on the balance sheet. On the income statement, bad debt expenses are generally classified as sales and general administrative expenses. In as much as the company may be entitled to receive payment from the credit sales to customers, there are still chances that the company may never actually receive those funds. The issue with the accounts receivable balance is that there is no guarantee that the company will collect the money owed from credit sales. When a company records credit sales, it makes a credit entry to a revenue account and a debit entry to an account receivable.

#Bad debt expense how to#

Related: How to do adjusting entries with examples Bad debt expense explained

In this article, we will discuss the adjusting entry for bad debt expense under both methods. These two methods move money out of the accounts receivable account (an asset account) when it has been decided that an account is uncollectable. In accounting, there are two common methods that companies use to write off bad debt which are the direct write-off method and the allowance method. This is the money owed to a business that has been decided to be not collectible. In running a business, bad debt is an unfortunate reality that one may have to deal with. Example on bad debt expense adjusting entry.Allowance method and the adjusting entry for bad debt expense.Direct write-off method and the bad debts expense adjusting entry.