What effect does writing off an account receivable have on bad debts expense?

Writing off an account receivable directly affects the accounting treatment of bad debts expense. When an account is deemed uncollectible and is written off, it reduces the overall accounts receivable balance on the balance sheet. However, it also confirms that a previously anticipated payment will not be received, leading to an immediate recognition of bad debts expense.

This recognition typically occurs because, under the matching principle of accounting, expenses related to the revenue must be recognized in the same period as the revenue was recorded. Therefore, when an account is written off, it is recorded as an expense at that time. If that account was previously estimated within the allowance for doubtful accounts, the write-off activity might not directly impact the total bad debts expense for the period already recorded, but it does reinforce the need to account for potential losses.

Therefore, writing off an account must increase the bad debts expense to reflect the realization of that specific loss and align with treating all bad debts in a consistent manner.