Definition of Accounts Written Off
Example of Accounts Written Off
Assume that one of a company's customers who were given 30 days in which to pay has filed for bankruptcy and the customer's assets are close to $0. Therefore, there will be no amount left to pay any of the $4,000 it owes to the company. The company will write off the uncollectible account by crediting Accounts Receivable for $4,000. The account the company will debit for $4,000 depends on whether the company has the contra-asset account Allowance for Doubtful Accounts.
If the company has the Allowance account, the company will debit Allowance for Doubtful Accounts for $4,000.
If the company does not have an Allowance account, the company will debit Bad Debts Expense for $4,000.