A bad debt write-off removes a receivable that is no longer expected to be collected while preserving the customer, invoice and collection evidence.
Confirm the debt is genuinely uncollectible, obtain required approval, use the accounting method that applies and retain tax support.
Bad debt write-off decision and entry
A write-off should follow documented collection efforts, evidence of insolvency or uncollectibility, approval limits, and the accounting method in use. Under a direct write-off example, a $2,000 uncollectible invoice is recorded by debiting bad debt expense and crediting accounts receivable. Under an allowance method, the write-off normally uses the allowance for doubtful accounts rather than creating new expense at that moment.
| Question | Evidence |
|---|---|
| Is the receivable valid? | Invoice, contract, delivery, dispute outcome, and customer account |
| Is it uncollectible? | Collection history, insolvency notice, legal advice, or other objective evidence |
| Who can approve? | Policy threshold and signed authorization |
| Is a tax deduction available? | Separate tax-law analysis and required supporting records |
Do not delete the customer or invoice. A later recovery must be recorded correctly, and accounting recognition does not automatically create an income-tax deduction.
Keep the collection decision separate from tax treatment
Writing off a balance in the books does not automatically create a tax deduction or end the legal right to collect. Record the evidence, approval and accounting treatment separately. If money is later recovered, follow the appropriate recovery entry instead of editing history. Review any tax adjustment with the adviser responsible for the relevant jurisdiction and accounting method.
Example
A $2,000 invoice remains unpaid after insolvency notice and documented recovery efforts, so the business debits bad debt expense and credits accounts receivable under the direct write-off method.
What to watch for
Accounting recognition and tax deductibility are different questions, and recoveries after write-off must be recorded correctly.
Put the next step into practice
Read our guide to credits, refunds and debit notes for the related workflow. Explore Invoice Crowd customer invoicing to see the product capabilities relevant to your setup.
