Bad Debt

by Treat

Writing Off Bad Debt

Please differentiate between bad debt and provision for bad debt.

Hi Treat,

Generally, bad debt refers to bad debt expense (on your income statement), which is an estimate of the sales for the period that you do not expect to collect.

Provision for bad debt refers to the Allowance for Doubtful Accounts (on your balance sheet), which is a contra account to the Accounts Receivable account. The amount in this account is the estimate of the sales in total that you do not expect to collect.

You can find more information in Common Bookkeeping Entries where I discuss how to record bad debt allowance and how to write-off a bad debt.

If you follow the links, you will also come to a discussion on how bad debt is treated for tax purposes which is different than for accounting purposes ... which I think is what creates all the confusion sometimes.

Comments for Bad Debt

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Nov 30, 2011

Recovering HST on Bad Debt
by: Betty Lambeska, Ottawa

I had to write off a receivable as a bad debt -- credit "Accounts Receivable" and debit "Bad Debt".

Meanwhile, the HST on the sale that generated the receivable has previously been remitted to the Receiver General.

Is there a way to record the bad debt so that the HST collected on the sale is reversed?

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Hey Betty,

Did you write it off to Bad Debt Expense or Allowance for Doubtful Accounts?

Take a look at the links above to read about how to record bad debt. If you've done it correctly, you will recover your HST.

Post back here if you don't understand something after you've read the chat.

Jan 28, 2014

Uncollectable Accounts and HST
by: Kyle, St Catharines, Ontario

If a client owes me $500 + HST (= $565) since last March, and I need to write it off, I would debit Bad Debt Expense, and credit Accounts Receivable.

But how do I reverse the "HST Collected" account when the original sale was made? Thanks in advance for your help!

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Hey Kyle,

I've created an index of all the journal entries on the site. You can access the index under the Quick References tab.

You will find the entry you need there.

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