Bad Debt Expense

Bad debt expense is the loss the business has when it doesn't collect on goods or services it sold. This is included as a reduction on the accounts receivable sheet.

There are two ways to calculate and record it. The first is the direct write off method, where the business writes off the amount owed as soon as it becomes uncollectible. The other is allowance method. This method records an estimated dollar amount that was lost in the period.