Nice article Emily! I will use it for customers that struggle with this process.
On a side note, if your business files a tax return on a cash basis, you don’t use “bad debts”, you just write off the invoice to the same item that you originally used in the invoice you are writing off.
But if you use the accrual method, this is the way to do it. Very simply! :cathappy:
This assumes you are writng off each year what you think may be a bad det to the Allowance for Doubtful accounts. Which is on the balances sheet & reduces accounts Receivable.
At year end you would make a journal entry debiting bad debts & crediting this allowance account. Then when you actually wrtite the invoices off, it goes against the allowance account not the bad debt account since you already took the expense.
Lynda is correct, this s for the accrual method of accounting & not cash basis.