Bad Debt Expense

Bad debt expense refers to the amount of unpaid accounts receivable that a business has determined to be uncollectible.
In Australia, businesses can claim bad debt expenses as tax deductions, subject to certain conditions and limitations set by the Australian Taxation Office (ATO).
Proper management of bad debt expenses is crucial for accurate financial reporting and maintaining a healthy cash flow.
Businesses should establish sound credit policies and procedures to minimize the risk of bad debts and ensure timely collection of receivables.

How do I calculate Bad Debt Expense?
Bad Debt Expense is calculated using either the percentage of credit sales method or the aging of accounts receivable method. The percentage of credit sales method estimates bad debt based on a predetermined percentage of total credit sales, while the aging of accounts receivable method analyzes the aging of outstanding receivables to estimate uncollectible amounts.


How to record Bad Debt Expense?
To record Bad Debt Expense, create a journal entry debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts (a contra-asset account). This reflects the estimated loss from uncollectible debts and reduces the net realizable value of accounts receivable on the balance sheet.


How to record Bad Debt Expense in accounting?
In accounting, record Bad Debt Expense by debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts. This ensures proper recognition of the estimated loss from uncollectible debts and maintains accuracy in financial reporting.

Please enable JavaScript in your browser to complete this form.