Decrease net income and the net realizable value of the accounts receivable. A write-off has no impact on the accounts receivable's net realizable value when using the allowance approach. Accounts receivable and the bad debt reserve are simply decreased in proportion.
Customers occasionally pay their obligations even when their accounts have previously been written off as uncollectible. Accounts receivable on the balance sheet are reduced when bad debts are recognized, but firms still have the right to collect money if the situation changes. To account for bad debt expense, there are two main techniques.
When a receivable is no longer recoverable as a result of a customer's inability to pay an outstanding debt owing to bankruptcy or other financial issues, a bad debt expense is recorded.
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