A customer invoice that will never be collected, written off honestly.
Bad debt is a receivable that has become uncollectible — a customer who vanished, went under, or simply will never pay. Writing it off removes the invoice from accounts receivable and records the loss, so the books stop carrying a fictional asset.
The write-off records bad debt expense and clears the receivable (methods vary; larger businesses estimate an allowance in advance). What matters for a small business: review A/R aging regularly, chase what's chaseable, and write off what isn't — inflated receivables flatter the balance sheet and mislead everyone reading it, including you. Tax treatment has its own rules; ask a tax professional.
An invoice from 14 months ago, $900, three broken promises to pay, customer's phone disconnected. Write it off: bad debt expense $900, accounts receivable down $900. If they ever do pay, the recovery is recorded as its own small win.
Accounts Receivable (A/R) · Net Profit · Journal Entry — or browse the full plain-English glossary.
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