[Anonymous]

Our company write off bad debt directly through Accounts Receivable. We only adjust Allowance for Doubtful Account when the balance is too much over or under the threshold, which is 2% of Account Receivable balance. I thought you always adjust/write AR balance through Allowance for Doubtful Account. Does anyone know if it’s correct? Our PwC auditors never had issue with it though.

[Anonymous]

I understand that there is a direct off method. However, if we do have Allowance for Doubtful Account shouldn’t we use it for write offs?

[Anonymous]

If it's an immaterial amount of bad debt, it is one way to do it.

[Missy]

It doesn't really matter the method so long as at year end the balance (if any) in doubtful accounts on the balance sheet makes sense based on the receivables.

So if you start the year with 10k in the allowance for doubtful accounts, and during the year write 10k off directly to receivables, at year end you would still have 10k sitting in the allowance because you hadnt touched it. As long as that 10k still makes sense as a reserve everything was done correctly.

To do it the way you assume is correct (all write offs go to the allowance) during the year if 10k was actually written off it would have depleted the allowance to nothing and an additional reserve would be created if $10k was the appropriate number. The net of all of the transactions required to do that would end up on the balance sheet exactly the way it ends up the way your company is currently doing it.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Author]

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