Bad debts and the allowance method
Objective: Record bad debt estimates, write-offs, and recoveries.
Recommended first: Invoicing and accounts receivable, Contra accounts
Under the allowance method, a business estimates uncollectible receivables at period end (Dr Bad Debt Expense / Cr Allowance). When a specific account is later written off, it is removed against the allowance (Dr Allowance / Cr Accounts Receivable) — no new expense.
- Estimate: matches the expense to the period of the sales.
- Write-off: no effect on net receivables or expense.
- Recovery: reinstate, then record the cash receipt.
The allowance method matches estimated losses with the sales that caused them. Estimates are commonly based on a percentage of receivables or an aging schedule, as stated in an exercise. Later write-offs only move amounts between the allowance and the receivable. If a written-off customer later pays, reinstate the receivable and then record the collection.
Check your work
- Is the estimate recorded as expense in the period of sale?
- Does the write-off avoid a second expense?
- Was a recovery reinstated before the cash was recorded?
A $300 account is written off.
| Account | Debit | Credit |
|---|---|---|
| Allowance for Doubtful Accounts | $300.00 | |
| Accounts Receivable | $300.00 |
Common mistakes
✗ Debiting Bad Debt Expense at write-off under the allowance method.
✓ The expense was recognized with the estimate.
Guided practice
Use hints freely here.
Item 1 of 1
Estimate bad debts
At Mar 31, 2026, FixRight Appliance Repair estimates that $240.00 of receivables will be uncollectible and records the allowance (the allowance currently has a zero balance).
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Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 4
Write off an uncollectible account (allowance method)
On Mar 30, 2026, FixRight Appliance Repair decides a $540.00 receivable from a customer who moved away will not be collected. The business uses the allowance method.
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Key terms
- Allowance method
- Estimating uncollectible receivables at period end.
- Write-off
- Removing a specific uncollectible receivable.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.