# How do I write off a customer invoice I'm never going to collect, and what do I need on file to support the write-off?

- **[United States · companies recognising bad debt on customer accounts]** The text identifies two methods a company may use to recognise bad debt: the direct write-off method and the allowance method. → [CG-MCE-033#S06](#s-CG-MCE-033-S06)
- **[United States · companies using the allowance method · US GAAP]** When a specific customer account is identified as uncollectible under the allowance method, the write-off debits Allowance for Doubtful Accounts and credits that specific customer's Accounts Receivable — the allowance falls because the bad debt amount is no longer unclear and the receivable falls on the assumption that no debt will be collected on that identified customer's account; no entry is made to revenue or bad debt expense. → [CG-MCE-033#S10](#s-CG-MCE-033-S10)
- **[United States · Not stated; article is a US-oriented general accounting reference]** The direct write off method does not reduce recorded sales; it increases bad debt expense. → [CG-MCE-033#S15](#s-CG-MCE-033-S15)
- **[California, United States (California Sales and Use Tax Law) · retailers claiming a bad debt deduction or refund]** Retailers must maintain adequate and complete records supporting bad debt deductions or refund claims, showing the items the subdivision then lists. → [CG-MCE-033#S48](#s-CG-MCE-033-S48)

## What this page establishes

- What has to be established before a balance is treated as uncollectible, and how that differs from one that is merely overdue — Partly established (Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference, primary regulator or government.)
- The recognised methods of accounting for uncollectible receivables, and what decides which one applies — Established (Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference.)
- What the removal does to the receivable, to revenue already recorded, to the profit and loss, and to a later recovery — Partly established (Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference.)
- When sales tax on a written-off sale can be adjusted — the conditions set by the jurisdiction that levied it — Established
- Records you are required to keep with the write-off, and what that retention is for — Partly established
- The evidence recognised as supporting a conclusion that a receivable is uncollectible, and the record of who authorised it — Partly established
- The federal income-tax conditions that govern a bad-debt deduction — Established
- First decide: is this balance really uncollectible? — Partly established (Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference, primary regulator or government.)
- Which method your books use for uncollectible customer invoices — Established (Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference.)
- Removing the balance so the invoice and the customer's account both clear — Partly established (Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference.)
- Does the write-off reverse the sale, or record a separate charge? — Established (Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference.)
- Sales tax you already charged, reported and remitted on that invoice — Partly established
- Accrual books, where the revenue was already recorded, versus cash-basis books — Not established (Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference.)
- What must be on file to support the write-off: what was billed, what collection was attempted, why it is uncollectible, and who approved it — Partly established
- If the customer later pays part or all of it — Not established (Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference.)
- Whether the write-off is deductible is a separate tax determination, not a result of the entry — Established

## First decide: is this balance really uncollectible?
<a id="need-CG-MCE-033-P1"></a>

- <a id="s-CG-MCE-033-S02"></a>The balance sheet aging of receivables method estimates bad debt from the receivables balance while also considering each account's uncollectible time period; the longer a receivable stays unpaid the lower the probability of collection, so a 90-day overdue account is more likely to be unpaid than a 30-day past due account — age changes probability of collection, it does not itself establish uncollectibility. _(jurisdiction: United States, entity_scope: companies using the balance sheet aging of receivables method, accounting_basis: US GAAP)_ `CG-MCE-033#S02`
  > “The balance sheet aging of receivables method estimates bad debt expenses based on the balance in accounts receivable, but it also considers the uncollectible time period for each account. The longer the time passes with a receivable unpaid, the lower the probability that it will get collected. An account that is 90 days overdue is more likely to be unpaid than an account that is 30 days past due.” — [OpenStax, Rice University — Principles of Accounting, Volume 1: Financial Accounting — 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches](https://openstax.org/books/principles-financial-accounting/pages/9-2-account-for-uncollectible-accounts-using-the-balance-sheet-and-income-statement-approaches), 2026-04-23; 9.2, section "Balance Sheet Aging of Receivables Method for Calculating Bad Debt Expenses", first paragraph. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S03"></a>At period end the allowance reduces overall Accounts Receivable to Net Accounts Receivable rather than any specific customer's receivable, because as an estimate it does not identify which exact account is or will become uncollectible — distinguishing the estimate from a write-off of an identified account. _(jurisdiction: United States, entity_scope: companies using the allowance method, accounting_basis: US GAAP)_ `CG-MCE-033#S03`
  > “At the end of an accounting period, the Allowance for Doubtful Accounts reduces the Accounts Receivable to produce Net Accounts Receivable. Note that allowance for doubtful accounts reduces the overall accounts receivable account, not a specific accounts receivable assigned to a customer. Because it is an estimation, it means the exact account that is (or will become) uncollectible is not yet known.” — [OpenStax, Rice University — Principles of Accounting, Volume 1: Financial Accounting — 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches](https://openstax.org/books/principles-financial-accounting/pages/9-2-account-for-uncollectible-accounts-using-the-balance-sheet-and-income-statement-approaches), 2026-04-23; 9.2, section "Fundamentals of Bad Debt Expenses and Allowances for Doubtful Accounts". Verified 2026-09-09.

- <a id="s-CG-MCE-033-S04"></a>The Board did not intend to delay the point at which assets are written off and therefore retained the requirement that assets are written off if they are deemed to be uncollectible (rather than adopting a “no reasonable expectation of recovery” trigger). _(jurisdiction: United States — U.S. GAAP (FASB Accounting Standards Codification), applied by nongovernmental entities, entity_scope: Financial assets within the scope of the credit-loss amendments, accounting_basis: U.S. GAAP, conditions: Basis for Conclusions statement of the Board's decision, not itself a Codification requirement; Contrast drawn with the December 2012 Exposure Draft, which proposed writeoff when there is no reasonable expectation of recovery)_ `CG-MCE-033#S04`
  > “The Board did not intend
to delay the point at which assets are written off and, therefore, decided to retain
the requirement that assets are written off if they are deemed to be uncollectible.” — [Financial Accounting Standards Board (FASB) — Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments](https://storage.fasb.org/ASU%202016-13.pdf), 2016-06-16; Background Information and Basis for Conclusions, “Use of a Valuation Allowance for Expected Credit Losses for Financial Assets Measured at Amortized Cost”, paragraph BC73, printed page 265. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S05"></a>The Board decided that expected credit losses for all financial assets should be reflected through a valuation allowance rather than a direct adjustment to the asset's cost basis, and that an entity should write off a financial asset (or a portion of it) when the entity determines that it is uncollectible. _(jurisdiction: United States — U.S. GAAP (FASB Accounting Standards Codification), applied by nongovernmental entities, entity_scope: All financial assets within the scope of the credit-loss amendments, accounting_basis: U.S. GAAP, conditions: Basis for Conclusions statement of the Board's decision, not itself a Codification requirement)_ `CG-MCE-033#S05`
  > “The Board decided that expected credit losses for all financial assets
should be reflected through a valuation allowance rather than a direct adjustment
to the cost basis of the asset. However, the Board also decided that an entity
should write off a financial asset (or portion of a financial asset) when the entity
determines that it is uncollectible.” — [Financial Accounting Standards Board (FASB) — Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments](https://storage.fasb.org/ASU%202016-13.pdf), 2016-06-16; Background Information and Basis for Conclusions, “Use of a Valuation Allowance for Expected Credit Losses for Financial Assets Measured at Amortized Cost”, paragraph BC72, printed page 265. Verified 2026-09-09.

_Partly established. Established: what evidence supports a conclusion that the amount will not be collected (S38, S39, S40); how that conclusion differs from a balance that is simply overdue (S02). Missing: how that conclusion differs from a balance that is disputed; how that conclusion differs from a balance that is wrong in the ledger._

_Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference, primary regulator or government._

## What has to be established before a balance is treated as uncollectible, and how that differs from one that is merely overdue
<a id="need-CG-MCE-033-C1"></a>

- See above: The balance sheet aging of receivables method estimates bad debt from the receivables balance while also considering each account's uncollectible time period; the longer a receivable stays unpaid the lower the probability of collection, so a 90-day overdue account is more likely to be unpaid than a 30-day past due account — age changes probability of collection, it does not itself establish uncollectibility. ([CG-MCE-033#S02](#s-CG-MCE-033-S02))

- See above: At period end the allowance reduces overall Accounts Receivable to Net Accounts Receivable rather than any specific customer's receivable, because as an estimate it does not identify which exact account is or will become uncollectible — distinguishing the estimate from a write-off of an identified account. ([CG-MCE-033#S03](#s-CG-MCE-033-S03))

- See above: The Board did not intend to delay the point at which assets are written off and therefore retained the requirement that assets are written off if they are deemed to be uncollectible (rather than adopting a “no reasonable expectation of recovery” trigger). ([CG-MCE-033#S04](#s-CG-MCE-033-S04))

- See above: The Board decided that expected credit losses for all financial assets should be reflected through a valuation allowance rather than a direct adjustment to the asset's cost basis, and that an entity should write off a financial asset (or a portion of it) when the entity determines that it is uncollectible. ([CG-MCE-033#S05](#s-CG-MCE-033-S05))

_Partly established. Established: the criteria recognised for concluding that a customer receivable has become uncollectible (S38, S39); what distinguishes that conclusion from a balance that is merely overdue (S02). Missing: the steps expected before that conclusion is reached; what distinguishes that conclusion from a balance that is disputed; what distinguishes that conclusion from a balance that is wrong in the ledger._

_Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference, primary regulator or government._

## Which method your books use for uncollectible customer invoices
<a id="need-CG-MCE-033-P2"></a>

- See above: The Board decided that expected credit losses for all financial assets should be reflected through a valuation allowance rather than a direct adjustment to the asset's cost basis, and that an entity should write off a financial asset (or a portion of it) when the entity determines that it is uncollectible. ([CG-MCE-033#S05](#s-CG-MCE-033-S05))

- <a id="s-CG-MCE-033-S06"></a>The text identifies two methods a company may use to recognise bad debt: the direct write-off method and the allowance method. _(jurisdiction: United States, entity_scope: companies recognising bad debt on customer accounts)_ `CG-MCE-033#S06`
  > “There are two methods a company may use to recognize bad debt: the direct write-off method and the allowance method.” — [OpenStax, Rice University — Principles of Accounting, Volume 1: Financial Accounting — 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches](https://openstax.org/books/principles-financial-accounting/pages/9-2-account-for-uncollectible-accounts-using-the-balance-sheet-and-income-statement-approaches), 2026-04-23; 9.2, section "Fundamentals of Bad Debt Expenses and Allowances for Doubtful Accounts", opening paragraph. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S07"></a>Anticipating the uncollectible amount of receivables and recording it in Allowance for Doubtful Accounts is the allowance method; a company that does not use an allowance account is following the direct write-off method — so whether an allowance account is used is what distinguishes the two. _(jurisdiction: United States, entity_scope: companies with accounts receivable, accounting_basis: accrual basis (the basis used throughout this explanation))_ `CG-MCE-033#S07`
  > “This method of anticipating the uncollectible amount of receivables and recording it in the Allowance for Doubtful Accounts is known as the allowance method . (If a company does not use an allowance account, it is following the direct write-off method , which is discussed later.)” — [AccountingCoach, LLC (Harold Averkamp, CPA, MBA) — Accounts Receivable and Bad Debts Expense: In-Depth Explanation with Examples](https://www.accountingcoach.com/accounts-receivable-and-bad-debts-expense/explanation), Undated standing web explanation ("In-Depth Explanation with Real-World Examples"); page carries "Copyright © 2026 AccountingCoach, LLC"; snapshot retrieved 2026-09-08; Allowance Method for Reporting Credit Losses (third paragraph). Verified 2026-09-09.

- <a id="s-CG-MCE-033-S09"></a>The article states that the direct write-off method is typically used by small businesses or by entities with low levels of credit sales and infrequent bad debts. _(jurisdiction: United States, entity_scope: Small businesses or entities with low credit sales and infrequent bad debts, conditions: hedged as 'typically used'; describes practice, not eligibility)_ `CG-MCE-033#S09`
  > “The direct write-off method is typically used by small businesses or entities with low levels of credit sales and infrequent bad debts.” — [AccountingTools, Inc. (Steven Bragg) — Direct write off method definition](https://www.accountingtools.com/articles/what-is-the-direct-write-off-method.html), 2026-05-15; Heading: Direct Write-Off Method FAQs — 'When is the direct write-off method typically used?'. Verified 2026-09-09.

_Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference._

## The recognised methods of accounting for uncollectible receivables, and what decides which one applies
<a id="need-CG-MCE-033-C2"></a>

- See above: The Board decided that expected credit losses for all financial assets should be reflected through a valuation allowance rather than a direct adjustment to the asset's cost basis, and that an entity should write off a financial asset (or a portion of it) when the entity determines that it is uncollectible. ([CG-MCE-033#S05](#s-CG-MCE-033-S05))

- See above: The text identifies two methods a company may use to recognise bad debt: the direct write-off method and the allowance method. ([CG-MCE-033#S06](#s-CG-MCE-033-S06))

- See above: Anticipating the uncollectible amount of receivables and recording it in Allowance for Doubtful Accounts is the allowance method; a company that does not use an allowance account is following the direct write-off method — so whether an allowance account is used is what distinguishes the two. ([CG-MCE-033#S07](#s-CG-MCE-033-S07))

- See above: The article states that the direct write-off method is typically used by small businesses or by entities with low levels of credit sales and infrequent bad debts. ([CG-MCE-033#S09](#s-CG-MCE-033-S09))

_Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference._

## Removing the balance so the invoice and the customer's account both clear
<a id="need-CG-MCE-033-P3"></a>

- See above: At period end the allowance reduces overall Accounts Receivable to Net Accounts Receivable rather than any specific customer's receivable, because as an estimate it does not identify which exact account is or will become uncollectible — distinguishing the estimate from a write-off of an identified account. ([CG-MCE-033#S03](#s-CG-MCE-033-S03))

- <a id="s-CG-MCE-033-S10"></a>When a specific customer account is identified as uncollectible under the allowance method, the write-off debits Allowance for Doubtful Accounts and credits that specific customer's Accounts Receivable — the allowance falls because the bad debt amount is no longer unclear and the receivable falls on the assumption that no debt will be collected on that identified customer's account; no entry is made to revenue or bad debt expense. _(jurisdiction: United States, entity_scope: companies using the allowance method, accounting_basis: US GAAP, conditions: a specific customer has been identified as an uncollectible account)_ `CG-MCE-033#S10`
  > “Allowance for Doubtful Accounts decreases (debit) and Accounts Receivable for the specific customer also decreases (credit). Allowance for doubtful accounts decreases because the bad debt amount is no longer unclear. Accounts receivable decreases because there is an assumption that no debt will be collected on the identified customer’s account.” — [OpenStax, Rice University — Principles of Accounting, Volume 1: Financial Accounting — 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches](https://openstax.org/books/principles-financial-accounting/pages/9-2-account-for-uncollectible-accounts-using-the-balance-sheet-and-income-statement-approaches), 2026-04-23; 9.2, section "Fundamentals of Bad Debt Expenses and Allowances for Doubtful Accounts", write-off entry when a specific customer is identified as uncollectible. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S11"></a>In the illustration, the allowance-method write-off reduces both the Accounts Receivable debit balance and the Allowance for Doubtful Accounts credit balance by the amount written off, leaving the net realizable value of accounts receivable unchanged at $230,000. _(jurisdiction: United States, entity_scope: illustrative company (Gem Merchandise Co.) applying the allowance method, accounting_basis: accrual basis, financial statement reporting, conditions: specific figures of the worked example ($1,400 write-off on August 24))_ `CG-MCE-033#S11`
  > “Note that prior to the August 24 entry of $1,400 to write off the uncollectible amount, the net realizable value of the accounts receivables was $230,000 ($240,000 debit balance in Accounts Receivable and $10,000 credit balance in Allowance for Doubtful Accounts). After writing off the bad account on August 24, the net realizable value of the accounts receivable is still $230,000 ($238,600 debit balance in Accounts Receivable and $8,600 credit balance in Allowance for Doubtful Accounts).” — [AccountingCoach, LLC (Harold Averkamp, CPA, MBA) — Accounts Receivable and Bad Debts Expense: In-Depth Explanation with Examples](https://www.accountingcoach.com/accounts-receivable-and-bad-debts-expense/explanation), Undated standing web explanation ("In-Depth Explanation with Real-World Examples"); page carries "Copyright © 2026 AccountingCoach, LLC"; snapshot retrieved 2026-09-08; Writing Off an Account under the Allowance Method (Gem Merchandise Co. illustration). Verified 2026-09-09.

- <a id="s-CG-MCE-033-S12"></a>Writeoffs of financial assets, whether full or partial, must be deducted from the allowance for credit losses. _(jurisdiction: United States — U.S. GAAP (FASB Accounting Standards Codification), applied by nongovernmental entities, entity_scope: All entities, for financial assets (including loans and trade receivables) within the scope of Subtopic 326-20, accounting_basis: U.S. GAAP; amortized cost basis, effective_from: Fiscal years beginning after December 15, 2019 (public business entities that are SEC filers) / December 15, 2020 (other entities), per 326-10-65-1, conditions: The quoted paragraph is shown in the ASU with deleted text struck out and added text underlined; the plain text interleaves the old wording (“Credit losses for loans and trade receivables”, “particular loan or trade receivable”) with the new wording (“Writeoffs of financial assets”, “full or partial writeoffs”). Content amended and moved from paragraph 310-10-35-41.)_ `CG-MCE-033#S12`
  > “326-20-35-8 Credit losses for loans and trade receivables Writeoffs of financial
assets, which may be for all or part of a particular loan or trade receivable full or
partial writeoffs, shall be deducted from the allowance.” — [Financial Accounting Standards Board (FASB) — Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments](https://storage.fasb.org/ASU%202016-13.pdf), 2016-06-16; Subtopic 326-20, Subsequent Measurement > General > Writeoffs and Recoveries of Financial Assets, paragraph 326-20-35-8 (first sentence), printed page 115. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S13"></a>The article describes the write-off action in accounting software as creating a credit memo for the customer that offsets the bad debt amount, which produces a debit to a bad debt expense account and a credit to the accounts receivable account. _(jurisdiction: United States, entity_scope: Entities writing off receivables using accounting software, platform: Generic 'accounting software'; no named product, conditions: described for the direct write off method; no specific software product identified)_ `CG-MCE-033#S13`
  > “The specific action used to write off an account receivable under this method with accounting software is to create a credit memo for the customer in question, which offsets the amount of the bad debt. Creating the credit memo creates a debit to a bad debt expense account and a credit to the accounts receivable account.” — [AccountingTools, Inc. (Steven Bragg) — Direct write off method definition](https://www.accountingtools.com/articles/what-is-the-direct-write-off-method.html), 2026-05-15; Heading: Accounting for the Direct Write-Off Method. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S14"></a>The article concludes from its example that the write-off leaves revenue unchanged, eliminates the remaining receivable, and creates an expense equal to the bad debt. _(jurisdiction: United States, entity_scope: Not stated; stated as the outcome of the article's worked example, conditions: drawn from the article's worked example)_ `CG-MCE-033#S14`
  > “Thus, the revenue amount remains the same, the remaining receivable is eliminated, and an expense is created in the amount of the bad debt.” — [AccountingTools, Inc. (Steven Bragg) — Direct write off method definition](https://www.accountingtools.com/articles/what-is-the-direct-write-off-method.html), 2026-05-15; Heading: Accounting for the Direct Write-Off Method (conclusion of illustrative example). Verified 2026-09-09.

_Partly established. Established: what absorbs it (S10, S11, S12, S13, S14). Missing: how the balance is removed under each method._

_Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference._

## Does the write-off reverse the sale, or record a separate charge?
<a id="need-CG-MCE-033-P4"></a>

- See above: When a specific customer account is identified as uncollectible under the allowance method, the write-off debits Allowance for Doubtful Accounts and credits that specific customer's Accounts Receivable — the allowance falls because the bad debt amount is no longer unclear and the receivable falls on the assumption that no debt will be collected on that identified customer's account; no entry is made to revenue or bad debt expense. ([CG-MCE-033#S10](#s-CG-MCE-033-S10))

- See above: The article concludes from its example that the write-off leaves revenue unchanged, eliminates the remaining receivable, and creates an expense equal to the bad debt. ([CG-MCE-033#S14](#s-CG-MCE-033-S14))

- <a id="s-CG-MCE-033-S15"></a>The direct write off method does not reduce recorded sales; it increases bad debt expense. _(jurisdiction: United States, entity_scope: Not stated; article is a US-oriented general accounting reference)_ `CG-MCE-033#S15`
  > “The method does not involve a reduction in the amount of recorded sales, only the increase of the bad debt expense.” — [AccountingTools, Inc. (Steven Bragg) — Direct write off method definition](https://www.accountingtools.com/articles/what-is-the-direct-write-off-method.html), 2026-05-15; Heading: Accounting for the Direct Write-Off Method. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S17"></a>The period-end allowance-method estimation entry debits Bad Debt Expense and credits Allowance for Doubtful Accounts, so the charge to profit and loss arises from the estimate rather than from reversing revenue. _(jurisdiction: United States, entity_scope: companies using the allowance method, accounting_basis: accrual / US GAAP, conditions: recorded when the estimation is made at the end of a period)_ `CG-MCE-033#S17`
  > “The journal entry for the Bad Debt Expense increases (debit) the expense’s balance, and the Allowance for Doubtful Accounts increases (credit) the balance in the Allowance.” — [OpenStax, Rice University — Principles of Accounting, Volume 1: Financial Accounting — 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches](https://openstax.org/books/principles-financial-accounting/pages/9-2-account-for-uncollectible-accounts-using-the-balance-sheet-and-income-statement-approaches), 2026-04-23; 9.2, section "Fundamentals of Bad Debt Expenses and Allowances for Doubtful Accounts", allowance-method period-end estimation entry. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S18"></a>A receivable from a contract with a customer must be accounted for in accordance with Topic 310 and Subtopic 326-20, and on initial recognition any difference between the measurement of the receivable under Subtopic 326-20 and the corresponding amount of revenue recognised must be presented as a credit loss expense (for example, as an impairment loss). _(jurisdiction: United States — U.S. GAAP (FASB Accounting Standards Codification), applied by nongovernmental entities, entity_scope: Entities recognising receivables from contracts with customers under Topic 606, accounting_basis: U.S. GAAP, effective_from: As amended, with a link to transition paragraph 326-10-65-1, conditions: Applies at initial recognition of the receivable; Shown with amendment markup: “Topic 310” struck out and “Subtopic 326-20” added; “an” struck out and “a credit loss expense” added)_ `CG-MCE-033#S18`
  > “An entity shall account for a
receivable in accordance with Topic 310 and Subtopic 326-20. Upon initial
recognition of a receivable from a contract with a customer, any difference
between the measurement of the receivable in accordance with Topic 310
Subtopic 326-20 and the corresponding amount of revenue recognized shall be
presented as an a credit loss expense (for example, as an impairment loss).” — [Financial Accounting Standards Board (FASB) — Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments](https://storage.fasb.org/ASU%202016-13.pdf), 2016-06-16; Amendments to Subtopic 606-10 (paragraph 23) > Revenue from Contracts with Customers—Overall, Other Presentation Matters, paragraph 606-10-45-4, printed page 174. Verified 2026-09-09.

_Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference._

## What the removal does to the receivable, to revenue already recorded, to the profit and loss, and to a later recovery
<a id="need-CG-MCE-033-C3"></a>

- See above: At period end the allowance reduces overall Accounts Receivable to Net Accounts Receivable rather than any specific customer's receivable, because as an estimate it does not identify which exact account is or will become uncollectible — distinguishing the estimate from a write-off of an identified account. ([CG-MCE-033#S03](#s-CG-MCE-033-S03))

- See above: When a specific customer account is identified as uncollectible under the allowance method, the write-off debits Allowance for Doubtful Accounts and credits that specific customer's Accounts Receivable — the allowance falls because the bad debt amount is no longer unclear and the receivable falls on the assumption that no debt will be collected on that identified customer's account; no entry is made to revenue or bad debt expense. ([CG-MCE-033#S10](#s-CG-MCE-033-S10))

- See above: In the illustration, the allowance-method write-off reduces both the Accounts Receivable debit balance and the Allowance for Doubtful Accounts credit balance by the amount written off, leaving the net realizable value of accounts receivable unchanged at $230,000. ([CG-MCE-033#S11](#s-CG-MCE-033-S11))

- See above: Writeoffs of financial assets, whether full or partial, must be deducted from the allowance for credit losses. ([CG-MCE-033#S12](#s-CG-MCE-033-S12))

- See above: The article describes the write-off action in accounting software as creating a credit memo for the customer that offsets the bad debt amount, which produces a debit to a bad debt expense account and a credit to the accounts receivable account. ([CG-MCE-033#S13](#s-CG-MCE-033-S13))

- See above: The article concludes from its example that the write-off leaves revenue unchanged, eliminates the remaining receivable, and creates an expense equal to the bad debt. ([CG-MCE-033#S14](#s-CG-MCE-033-S14))

- See above: The direct write off method does not reduce recorded sales; it increases bad debt expense. ([CG-MCE-033#S15](#s-CG-MCE-033-S15))

- See above: The period-end allowance-method estimation entry debits Bad Debt Expense and credits Allowance for Doubtful Accounts, so the charge to profit and loss arises from the estimate rather than from reversing revenue. ([CG-MCE-033#S17](#s-CG-MCE-033-S17))

- See above: A receivable from a contract with a customer must be accounted for in accordance with Topic 310 and Subtopic 326-20, and on initial recognition any difference between the measurement of the receivable under Subtopic 326-20 and the corresponding amount of revenue recognised must be presented as a credit loss expense (for example, as an impairment loss). ([CG-MCE-033#S18](#s-CG-MCE-033-S18))

- <a id="s-CG-MCE-033-S19"></a>The accrual basis of accounting is the method under which revenues are recognised on the income statement when earned rather than when cash is received. _(jurisdiction: United States, entity_scope: entities reporting on the accrual basis, accounting_basis: accrual basis, conditions: definition only)_ `CG-MCE-033#S19`
  > “The accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received).” — [AccountingCoach, LLC (Harold Averkamp, CPA, MBA) — Accounts Receivable and Bad Debts Expense: In-Depth Explanation with Examples](https://www.accountingcoach.com/accounts-receivable-and-bad-debts-expense/explanation), Undated standing web explanation ("In-Depth Explanation with Real-World Examples"); page carries "Copyright © 2026 AccountingCoach, LLC"; snapshot retrieved 2026-09-08; End-of-page term definitions (definition of "accrual basis of accounting"), following the Disclaimer. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S20"></a>Under the accrual basis of accounting, revenues are treated as earned when the services are provided. _(jurisdiction: United States, entity_scope: sellers of services on credit, accounting_basis: accrual basis)_ `CG-MCE-033#S20`
  > “Under the accrual basis of accounting, revenues are considered earned at the time when the services are provided.” — [AccountingCoach, LLC (Harold Averkamp, CPA, MBA) — Accounts Receivable and Bad Debts Expense: In-Depth Explanation with Examples](https://www.accountingcoach.com/accounts-receivable-and-bad-debts-expense/explanation), Undated standing web explanation ("In-Depth Explanation with Real-World Examples"); page carries "Copyright © 2026 AccountingCoach, LLC"; snapshot retrieved 2026-09-08; Recording Services Provided on Credit (second paragraph). Verified 2026-09-09.

- <a id="s-CG-MCE-033-S21"></a>By definition a cash sale cannot become a bad debt, assuming the cash payment did not involve counterfeit currency — bad debt arises from credit sales, not cash sales. _(jurisdiction: United States, entity_scope: sellers making cash sales, conditions: assuming the cash payment did not entail counterfeit currency)_ `CG-MCE-033#S21`
  > “It may be obvious intuitively, but, by definition, a cash sale cannot become a bad debt, assuming that the cash payment did not entail counterfeit currency.” — [OpenStax, Rice University — Principles of Accounting, Volume 1: Financial Accounting — 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches](https://openstax.org/books/principles-financial-accounting/pages/9-2-account-for-uncollectible-accounts-using-the-balance-sheet-and-income-statement-approaches), 2026-04-23; 9.2, section "Income Statement Method for Calculating Bad Debt Expenses", first paragraph. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S52"></a>Writeoffs are recorded in the period in which the financial asset(s) are deemed uncollectible, and recoveries of financial assets and trade receivables previously written off must be recorded when received. _(jurisdiction: United States — U.S. GAAP (FASB Accounting Standards Codification), applied by nongovernmental entities, entity_scope: All entities, for financial assets (including loans and trade receivables) within the scope of Subtopic 326-20, accounting_basis: U.S. GAAP; amortized cost basis, effective_from: Fiscal years beginning after December 15, 2019 (public business entities that are SEC filers) / December 15, 2020 (other entities), per 326-10-65-1, conditions: The quoted text continues the sentence begun on printed page 115 (“writeoffs shall be recorded in the period in which …”) and shows deleted and added wording interleaved)_ `CG-MCE-033#S52`
  > “the loans or trade receivables financial asset(s) are deemed uncollectible.
Recoveries of loans financial assets and trade receivables previously charged
written off shall be recorded when received.” — [Financial Accounting Standards Board (FASB) — Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments](https://storage.fasb.org/ASU%202016-13.pdf), 2016-06-16; Subtopic 326-20, Subsequent Measurement > General > Writeoffs and Recoveries of Financial Assets, paragraph 326-20-35-8 (continuation), printed page 116. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S53"></a>Where a customer unexpectedly pays after an allowance-method write-off, the reinstatement entry debits that customer's Accounts Receivable and credits Allowance for Doubtful Accounts, and a second entry debits Cash and credits the customer's Accounts Receivable for the amount received. _(jurisdiction: United States, entity_scope: companies using the allowance method, accounting_basis: US GAAP, conditions: the customer pays on an account previously written off)_ `CG-MCE-033#S53`
  > “The first entry reverses the previous entry where bad debt was written off. This reinstatement requires Accounts Receivable: Customer to increase (debit), and Allowance for Doubtful Accounts to increase (credit). The second entry records the payment on the account. Cash increases (debit) and Accounts Receivable: Customer decreases (credit) for the amount received.” — [OpenStax, Rice University — Principles of Accounting, Volume 1: Financial Accounting — 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches](https://openstax.org/books/principles-financial-accounting/pages/9-2-account-for-uncollectible-accounts-using-the-balance-sheet-and-income-statement-approaches), 2026-04-23; 9.2, section "Fundamentals of Bad Debt Expenses and Allowances for Doubtful Accounts", recovery entries after an allowance-method write-off. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S54"></a>Where the original write-off was recorded under the direct write-off method as a credit to accounts receivable and a debit to bad debt expense, that original entry is reversed instead. _(jurisdiction: United States, entity_scope: businesses that wrote off the receivable under the direct write-off method, accounting_basis: direct write-off method, conditions: applies only where the original entry took that form)_ `CG-MCE-033#S54`
  > “If the original entry was instead a credit to accounts receivable and a debit to bad debt expense (the direct write-off method ), then reverse this original entry.” — [AccountingTools, Inc. (Steven Bragg) — Bad debt recovery definition](https://www.accountingtools.com/articles/bad-debt-recovery.html), 2026-02-26; Section heading: "Accounting for a Bad Debt Recovery", first bullet "Reverse the original recordation" (final sentence). Verified 2026-09-09.

_Partly established. Established: the effect of writing off a receivable on revenue previously recognised (S10, S14, S15, S17); the effect of writing off a receivable on the receivables balance (S10, S11, S13, S14); the treatment of an amount recovered after a write-off (S52, S53, S54). Missing: the effect of writing off a receivable on the profit and loss under each recognised method; how the removal clears the specific invoice and the customer's own account as well as the receivables balance; how accrual-basis books, where the revenue was already recognised, differ from cash-basis books, where the amount was never recorded as revenue at all._

_Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference._

## Accrual books, where the revenue was already recorded, versus cash-basis books
<a id="need-CG-MCE-033-P6"></a>

- See above: The accrual basis of accounting is the method under which revenues are recognised on the income statement when earned rather than when cash is received. ([CG-MCE-033#S19](#s-CG-MCE-033-S19))

- See above: Under the accrual basis of accounting, revenues are treated as earned when the services are provided. ([CG-MCE-033#S20](#s-CG-MCE-033-S20))

- See above: By definition a cash sale cannot become a bad debt, assuming the cash payment did not involve counterfeit currency — bad debt arises from credit sales, not cash sales. ([CG-MCE-033#S21](#s-CG-MCE-033-S21))

_Not established from an authoritative source._

_Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference._

## Sales tax you already charged, reported and remitted on that invoice
<a id="need-CG-MCE-033-P5"></a>

- <a id="s-CG-MCE-033-S22"></a>A retailer is relieved of California sales tax liability, or of liability to collect use tax, to the extent the measure of the tax is represented by accounts found worthless and charged off for income tax purposes (including where the retailer's income is reported on a related person's return and the debt is charged off there), or — where the retailer files no income tax return and its income is not on another person's return — charged off in accordance with generally accepted accounting principles. _(jurisdiction: California, United States (California Sales and Use Tax Law), entity_scope: retailers liable for California sales tax or required to collect California use tax, accounting_basis: income tax charge-off, or generally accepted accounting principles where the retailer is not required to file income tax returns and its income is not reported on another person's return, conditions: account found worthless; account charged off for income tax purposes, or charged off under GAAP in the stated alternative case)_ `CG-MCE-033#S22`
  > “A retailer is relieved from liability for sales tax (section 6055 of the Revenue and Taxation Code) or from liability to collect use tax (section 6203.5 of the Revenue and Taxation Code) insofar as the measure of the tax is represented by accounts found worthless and charged off for income tax purposes (which include circumstances where the retailer's income is reported on a related person's income tax return and the bad debt is charged off on that return) or, if the retailer is not required to file income tax returns and the retailer's income is not reported on another person's return, charged off in accordance with generally accepted accounting principles.” — [California Department of Tax and Fee Administration (CDTFA) — Regulation 1642. Bad Debts. (Sales and Use Tax Regulations, Title 18, Division 2, Chapter 4, Article 13)](https://cdtfa.ca.gov/lawguides/vol1/sutr/1642.html), 2013-08-13; Regulation 1642, subdivision (a) In General, first sentence. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S23"></a>A retailer may claim a bad debt deduction provided the sales tax, or amount of use tax, was actually paid to the state. _(jurisdiction: California, United States (California Sales and Use Tax Law), entity_scope: retailers claiming a California bad debt deduction, conditions: the sales tax or use tax amount was actually paid to the state)_ `CG-MCE-033#S23`
  > “A retailer may claim a bad debt deduction provided that the sales tax, or amount of use tax, was actually paid to the state.” — [California Department of Tax and Fee Administration (CDTFA) — Regulation 1642. Bad Debts. (Sales and Use Tax Regulations, Title 18, Division 2, Chapter 4, Article 13)](https://cdtfa.ca.gov/lawguides/vol1/sutr/1642.html), 2013-08-13; Regulation 1642, subdivision (a) In General, second sentence. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S24"></a>The bad debt deduction should be taken on the return for the period in which the amount was found worthless and charged off for income tax purposes, or, for a retailer not required to file income tax returns, charged off in accordance with generally accepted accounting principles. _(jurisdiction: California, United States (California Sales and Use Tax Law), entity_scope: retailers claiming a California bad debt deduction on a sales and use tax return, accounting_basis: income tax charge-off period, or GAAP charge-off for retailers not required to file income tax returns)_ `CG-MCE-033#S24`
  > “This deduction should be taken on the return filed for the period in which the amount was found worthless and charged off for income tax purposes or, if the retailer is not required to file income tax returns, charged off in accordance with generally accepted accounting principles.” — [California Department of Tax and Fee Administration (CDTFA) — Regulation 1642. Bad Debts. (Sales and Use Tax Regulations, Title 18, Division 2, Chapter 4, Article 13)](https://cdtfa.ca.gov/lawguides/vol1/sutr/1642.html), 2013-08-13; Regulation 1642, subdivision (a) In General, second paragraph. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S25"></a>Where a worthless, charged-off account is made up partly of nontaxable receipts (such as interest, insurance, repair, or installation labor) and partly of taxable receipts on which tax was paid, a bad debt deduction may be claimed only with respect to the unpaid amount on which tax has been paid. _(jurisdiction: California, United States (California Sales and Use Tax Law), entity_scope: retailers with mixed taxable and nontaxable accounts, conditions: account comprised in part of nontaxable receipts and in part of taxable receipts on which tax was paid)_ `CG-MCE-033#S25`
  > “If the amount of an account found to be worthless and charged off is comprised in part of nontaxable receipts such as interest, insurance, repair, or installation labor and in part of taxable receipts upon which tax has been paid, a bad debt deduction may be claimed only with respect to the unpaid amount upon which tax has been paid.” — [California Department of Tax and Fee Administration (CDTFA) — Regulation 1642. Bad Debts. (Sales and Use Tax Regulations, Title 18, Division 2, Chapter 4, Article 13)](https://cdtfa.ca.gov/lawguides/vol1/sutr/1642.html), 2013-08-13; Regulation 1642, subdivision (b) Amount Subject to Deduction, (1) Taxable Receipts, first sentence. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S26"></a>All retailers must report California sales tax liability on an accrual basis, and a bad debt deduction will not be disallowed solely because the retailer reports on a cash basis for income tax purposes. _(jurisdiction: California, United States (California Sales and Use Tax Law), entity_scope: all retailers reporting California sales tax, accounting_basis: accrual basis for sales tax reporting; cash basis permitted for income tax purposes without losing the deduction on that ground alone)_ `CG-MCE-033#S26`
  > “All retailers must report sales tax liability on an accrual basis. Bad debt deductions will not be disallowed solely for the reason that a retailer is on a cash reporting basis for income tax purposes.” — [California Department of Tax and Fee Administration (CDTFA) — Regulation 1642. Bad Debts. (Sales and Use Tax Regulations, Title 18, Division 2, Chapter 4, Article 13)](https://cdtfa.ca.gov/lawguides/vol1/sutr/1642.html), 2013-08-13; Regulation 1642, subdivision (c) Reporting. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S27"></a>If an account found worthless and charged off is later collected in whole or in part, the taxable percentage of the amount collected must be included in the first return filed after the collection and tax must be paid on that amount with the return. _(jurisdiction: California, United States (California Sales and Use Tax Law), entity_scope: retailers who later collect on a charged-off account, conditions: account previously found worthless and charged off; subsequent collection in whole or in part)_ `CG-MCE-033#S27`
  > “If any account found worthless and charged off is thereafter collected by the retailer, in whole or in part, the taxable percentage of the amount so collected shall be included in the first return filed after such collection and tax shall be paid on such amount with the return.” — [California Department of Tax and Fee Administration (CDTFA) — Regulation 1642. Bad Debts. (Sales and Use Tax Regulations, Title 18, Division 2, Chapter 4, Article 13)](https://cdtfa.ca.gov/lawguides/vol1/sutr/1642.html), 2013-08-13; Regulation 1642, subdivision (d) Worthless Account Subsequently Collected, first sentence. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S29"></a>The bad debt credit is not to be claimed until the debt becomes uncollectible and is charged off for federal income tax purposes. _(jurisdiction: United States — New York State (state and local sales and use tax), entity_scope: sellers claiming a New York bad debt sales tax credit, conditions: debt has become uncollectible; debt has been charged off for federal income tax purposes)_ `CG-MCE-033#S29`
  > “Do not claim the credit until the debt becomes uncollectible and is charged off for federal income tax purposes.” — [New York State Department of Taxation and Finance — Credits and refunds (Sales Tax Web File) — including 'Bad debt under Tax Law Section 1132(e)'](https://www.tax.ny.gov/e-services/stmi/credits_refunds.htm), 2024-06-18; "Miscellaneous" > "Bad debt under Tax Law Section 1132(e)", second sentence. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S30"></a>The bad debt credit must be claimed within three years from the due date of the return on which the tax was payable to the Tax Department; the date the bad debt was charged off for federal purposes is irrelevant in determining which bad debts may be claimed. _(jurisdiction: United States — New York State (state and local sales and use tax), entity_scope: sellers claiming a New York bad debt sales tax credit)_ `CG-MCE-033#S30`
  > “You must claim the credit within three years from the due date of the return where the tax was payable by you to the Tax Department. (The date you charged the bad debt off for federal purposes is irrelevant in determining which bad debts may be claimed.)” — [New York State Department of Taxation and Finance — Credits and refunds (Sales Tax Web File) — including 'Bad debt under Tax Law Section 1132(e)'](https://www.tax.ny.gov/e-services/stmi/credits_refunds.htm), 2024-06-18; "Bad debt under Tax Law Section 1132(e)" > "Certain requirements and limitations apply to the credit:", first bullet. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S31"></a>The bad debt credit is limited to an amount equal to the tax that was remitted to the Tax Department as tax. _(jurisdiction: United States — New York State (state and local sales and use tax), entity_scope: sellers claiming a New York bad debt sales tax credit)_ `CG-MCE-033#S31`
  > “Only an amount equal to the tax remitted to the Tax Department as tax may be claimed as a credit.” — [New York State Department of Taxation and Finance — Credits and refunds (Sales Tax Web File) — including 'Bad debt under Tax Law Section 1132(e)'](https://www.tax.ny.gov/e-services/stmi/credits_refunds.htm), 2024-06-18; "Bad debt under Tax Law Section 1132(e)" > "Certain requirements and limitations apply to the credit:", third bullet, first sentence. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S32"></a>If any amount attributable to a debt claimed as a bad debt credit is later recovered or collected, the seller must remit the tax on that amount with its first return after the recovery or collection. _(jurisdiction: United States — New York State (state and local sales and use tax), entity_scope: sellers that claimed a New York bad debt sales tax credit and later recover amounts, conditions: amount attributable to the written-off debt is later recovered or collected)_ `CG-MCE-033#S32`
  > “If you later recover or collect any amount attributable to a debt you claimed as a bad debt credit, you must remit the tax on this amount with your first return after the recovery or collection.” — [New York State Department of Taxation and Finance — Credits and refunds (Sales Tax Web File) — including 'Bad debt under Tax Law Section 1132(e)'](https://www.tax.ny.gov/e-services/stmi/credits_refunds.htm), 2024-06-18; "Bad debt under Tax Law Section 1132(e)" > "Certain requirements and limitations apply to the credit:", fourth bullet. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S33"></a>Additional restrictions on the bad debt credit, and examples of how to calculate it properly, are found in Sales Tax Regulations section 534.7 — so the conditions listed on this page are not the complete set. _(jurisdiction: United States — New York State (state and local sales and use tax), entity_scope: sellers claiming a New York bad debt sales tax credit)_ `CG-MCE-033#S33`
  > “See sales Tax Regulations section 534.7 for additional restrictions and for examples on how to properly calculate a bad debt credit.” — [New York State Department of Taxation and Finance — Credits and refunds (Sales Tax Web File) — including 'Bad debt under Tax Law Section 1132(e)'](https://www.tax.ny.gov/e-services/stmi/credits_refunds.htm), 2024-06-18; "Bad debt under Tax Law Section 1132(e)", closing line after the bullet list. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S48"></a>Retailers must maintain adequate and complete records supporting bad debt deductions or refund claims, showing the items the subdivision then lists. _(jurisdiction: California, United States (California Sales and Use Tax Law), entity_scope: retailers claiming a bad debt deduction or refund)_ `CG-MCE-033#S48`
  > “In support of deductions or claims for refund for bad debts, retailers must maintain adequate and complete records showing:” — [California Department of Tax and Fee Administration (CDTFA) — Regulation 1642. Bad Debts. (Sales and Use Tax Regulations, Title 18, Division 2, Chapter 4, Article 13)](https://cdtfa.ca.gov/lawguides/vol1/sutr/1642.html), 2013-08-13; Regulation 1642, subdivision (e) Records, opening sentence. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S49"></a>Among the required records is evidence that the uncollectible portion of gross receipts on which tax was paid has actually been legally charged off as a bad debt for income tax purposes (whether or not the income tax return has yet been filed), or charged off under generally accepted accounting principles where the retailer files no income tax return and its income is not on another person's return. _(jurisdiction: California, United States (California Sales and Use Tax Law), entity_scope: retailers claiming a bad debt deduction or refund, accounting_basis: income tax charge-off evidence, or GAAP charge-off in the stated alternative case)_ `CG-MCE-033#S49`
  > “Evidence that the uncollectible portion of gross receipts on which tax was paid actually has been legally charged off as a bad debt for income tax purposes (whether or not the income tax return has yet been filed) or, if the retailer is not required to file income tax returns and the retailer's income is not reported on another person's return, charged off in accordance with generally accepted accounting principles.” — [California Department of Tax and Fee Administration (CDTFA) — Regulation 1642. Bad Debts. (Sales and Use Tax Regulations, Title 18, Division 2, Chapter 4, Article 13)](https://cdtfa.ca.gov/lawguides/vol1/sutr/1642.html), 2013-08-13; Regulation 1642, subdivision (e) Records, item (7). Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S50"></a>The filer must explain and substantiate the credits; the Tax Law prohibits the Tax Department from processing credits and refunds unless all substantiating documentation is submitted with the claim. _(jurisdiction: United States — New York State (state and local sales and use tax), entity_scope: any claimant of a New York sales tax credit or refund, platform: New York State Sales Tax Web File, platform_edition: page updated June 18, 2024)_ `CG-MCE-033#S50`
  > “explain and substantiate the credits. (The Tax Law prohibits the Tax Department from processing credits and refunds unless you submit all substantiating documentation with your claim.)” — [New York State Department of Taxation and Finance — Credits and refunds (Sales Tax Web File) — including 'Bad debt under Tax Law Section 1132(e)'](https://www.tax.ny.gov/e-services/stmi/credits_refunds.htm), 2024-06-18; "AU-11 Credit /Refund as part of filing a sales tax return" > subheading "How to claim the credit", fourth bullet. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S51"></a>The claimant must electronically submit a schedule showing how the state and local taxes underlying the bad debt credit were computed. _(jurisdiction: United States — New York State (state and local sales and use tax), entity_scope: sellers claiming a New York bad debt sales tax credit)_ `CG-MCE-033#S51`
  > “You must electronically submit a schedule that shows how you computed the state and local taxes underlying the credit.” — [New York State Department of Taxation and Finance — Credits and refunds (Sales Tax Web File) — including 'Bad debt under Tax Law Section 1132(e)'](https://www.tax.ny.gov/e-services/stmi/credits_refunds.htm), 2024-06-18; "Miscellaneous" > "Bad debt under Tax Law Section 1132(e)", third sentence. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

_Partly established. Established: what happens to sales tax that was charged on the invoice and already reported and remitted (S22, S23, S31); the conditions on which any adjustment is available (S22, S23, S24, S25, S26, S29, S30, S31, S48, S49, S50, S51). Missing: how the business determines whether any adjustment is available to it._

## When sales tax on a written-off sale can be adjusted — the conditions set by the jurisdiction that levied it
<a id="need-CG-MCE-033-C4"></a>

- See above: A retailer is relieved of California sales tax liability, or of liability to collect use tax, to the extent the measure of the tax is represented by accounts found worthless and charged off for income tax purposes (including where the retailer's income is reported on a related person's return and the debt is charged off there), or — where the retailer files no income tax return and its income is not on another person's return — charged off in accordance with generally accepted accounting principles. ([CG-MCE-033#S22](#s-CG-MCE-033-S22))

- See above: A retailer may claim a bad debt deduction provided the sales tax, or amount of use tax, was actually paid to the state. ([CG-MCE-033#S23](#s-CG-MCE-033-S23))

- See above: The bad debt deduction should be taken on the return for the period in which the amount was found worthless and charged off for income tax purposes, or, for a retailer not required to file income tax returns, charged off in accordance with generally accepted accounting principles. ([CG-MCE-033#S24](#s-CG-MCE-033-S24))

- See above: Where a worthless, charged-off account is made up partly of nontaxable receipts (such as interest, insurance, repair, or installation labor) and partly of taxable receipts on which tax was paid, a bad debt deduction may be claimed only with respect to the unpaid amount on which tax has been paid. ([CG-MCE-033#S25](#s-CG-MCE-033-S25))

- See above: All retailers must report California sales tax liability on an accrual basis, and a bad debt deduction will not be disallowed solely because the retailer reports on a cash basis for income tax purposes. ([CG-MCE-033#S26](#s-CG-MCE-033-S26))

- See above: If an account found worthless and charged off is later collected in whole or in part, the taxable percentage of the amount collected must be included in the first return filed after the collection and tax must be paid on that amount with the return. ([CG-MCE-033#S27](#s-CG-MCE-033-S27))

- See above: The bad debt credit is not to be claimed until the debt becomes uncollectible and is charged off for federal income tax purposes. ([CG-MCE-033#S29](#s-CG-MCE-033-S29))

- See above: The bad debt credit must be claimed within three years from the due date of the return on which the tax was payable to the Tax Department; the date the bad debt was charged off for federal purposes is irrelevant in determining which bad debts may be claimed. ([CG-MCE-033#S30](#s-CG-MCE-033-S30))

- See above: The bad debt credit is limited to an amount equal to the tax that was remitted to the Tax Department as tax. ([CG-MCE-033#S31](#s-CG-MCE-033-S31))

- See above: If any amount attributable to a debt claimed as a bad debt credit is later recovered or collected, the seller must remit the tax on that amount with its first return after the recovery or collection. ([CG-MCE-033#S32](#s-CG-MCE-033-S32))

- See above: Additional restrictions on the bad debt credit, and examples of how to calculate it properly, are found in Sales Tax Regulations section 534.7 — so the conditions listed on this page are not the complete set. ([CG-MCE-033#S33](#s-CG-MCE-033-S33))

- See above: Retailers must maintain adequate and complete records supporting bad debt deductions or refund claims, showing the items the subdivision then lists. ([CG-MCE-033#S48](#s-CG-MCE-033-S48))

- See above: Among the required records is evidence that the uncollectible portion of gross receipts on which tax was paid has actually been legally charged off as a bad debt for income tax purposes (whether or not the income tax return has yet been filed), or charged off under generally accepted accounting principles where the retailer files no income tax return and its income is not on another person's return. ([CG-MCE-033#S49](#s-CG-MCE-033-S49))

- See above: The filer must explain and substantiate the credits; the Tax Law prohibits the Tax Department from processing credits and refunds unless all substantiating documentation is submitted with the claim. ([CG-MCE-033#S50](#s-CG-MCE-033-S50))

- See above: The claimant must electronically submit a schedule showing how the state and local taxes underlying the bad debt credit were computed. ([CG-MCE-033#S51](#s-CG-MCE-033-S51))

## Whether the write-off is deductible is a separate tax determination, not a result of the entry
<a id="need-CG-MCE-033-P9"></a>

- <a id="s-CG-MCE-033-S34"></a>A deduction is allowed for any debt that becomes worthless within the taxable year. _(jurisdiction: United States (federal income tax; 26 U.S.C., Subtitle A - Income Taxes), entity_scope: taxpayers computing taxable income under Chapter 1 (Part VI - Itemized Deductions for Individuals and Corporations), subject to the limits stated elsewhere in section 166, accounting_basis: United States federal income tax, conditions: the debt becomes worthless within the taxable year)_ `CG-MCE-033#S34`
  > “There shall be allowed as a deduction any debt which becomes worthless within the taxable year.” — [Office of the Law Revision Counsel, U.S. House of Representatives; published on govinfo by the U.S. Government Publishing Office — 26 U.S.C. 166 - Bad debts](https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapB-partVI-sec166.htm), 2024 (United States Code, 2024 Edition; latest amendment noted in credits: Pub. L. 100-647, Nov. 10, 1988); §166(a) General rule, (a)(1) Wholly worthless debts. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S35"></a>Where the Secretary is satisfied that a debt is recoverable only in part, the Secretary may allow the debt as a deduction in an amount not exceeding the part charged off within the taxable year. _(jurisdiction: United States (federal income tax; 26 U.S.C., Subtitle A - Income Taxes), entity_scope: taxpayers computing taxable income under Chapter 1, accounting_basis: United States federal income tax, conditions: the Secretary is satisfied that the debt is recoverable only in part; the deduction is capped at the part charged off within the taxable year)_ `CG-MCE-033#S35`
  > “When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.” — [Office of the Law Revision Counsel, U.S. House of Representatives; published on govinfo by the U.S. Government Publishing Office — 26 U.S.C. 166 - Bad debts](https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapB-partVI-sec166.htm), 2024 (United States Code, 2024 Edition; latest amendment noted in credits: Pub. L. 100-647, Nov. 10, 1988); §166(a) General rule, (a)(2) Partially worthless debts. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S36"></a>For purposes of the section 166(a) bad-debt deduction, the amount of the deduction for any bad debt is determined from the adjusted basis provided in section 1011 for determining loss from the sale or other disposition of property, not from another measure. _(jurisdiction: United States (federal income tax; 26 U.S.C., Subtitle A - Income Taxes), entity_scope: taxpayers claiming a deduction under section 166(a), accounting_basis: United States federal income tax)_ `CG-MCE-033#S36`
  > “For purposes of subsection (a), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.” — [Office of the Law Revision Counsel, U.S. House of Representatives; published on govinfo by the U.S. Government Publishing Office — 26 U.S.C. 166 - Bad debts](https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapB-partVI-sec166.htm), 2024 (United States Code, 2024 Edition; latest amendment noted in credits: Pub. L. 100-647, Nov. 10, 1988); §166(b) Amount of deduction. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S37"></a>For a taxpayer other than a corporation, the section 166(a) bad-debt deduction does not apply to a nonbusiness debt. _(jurisdiction: United States (federal income tax; 26 U.S.C., Subtitle A - Income Taxes), entity_scope: taxpayers other than corporations, accounting_basis: United States federal income tax, conditions: the debt is a nonbusiness debt as defined in section 166(d)(2))_ `CG-MCE-033#S37`
  > “In the case of a taxpayer other than a corporation—
 (A) subsection (a) shall not apply to any nonbusiness debt; and” — [Office of the Law Revision Counsel, U.S. House of Representatives; published on govinfo by the U.S. Government Publishing Office — 26 U.S.C. 166 - Bad debts](https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapB-partVI-sec166.htm), 2024 (United States Code, 2024 Edition; latest amendment noted in credits: Pub. L. 100-647, Nov. 10, 1988); §166(d) Nonbusiness debts, (d)(1) General rule, subparagraph (A). Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S38"></a>In determining whether a debt is worthless in whole or in part, the district director considers all pertinent evidence, including (but not limited to) the value of any collateral securing the debt and the financial condition of the debtor. _(jurisdiction: United States — federal income tax (26 CFR part 1, Internal Revenue Code section 166), entity_scope: taxpayers claiming a bad debt deduction under section 166, accounting_basis: United States federal income tax, conditions: the list of evidence is introduced by "including" and is not closed)_ `CG-MCE-033#S38`
  > “In determining whether a debt is worthless in whole or in part the district director will consider all pertinent evidence, including the value of the collateral, if any, securing the debt and the financial condition of the debtor.” — [Office of the Federal Register / Internal Revenue Service, Department of the Treasury (eCFR) — 26 CFR 1.166-2 - Evidence of worthlessness](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRc4930337f38ecfd/section-1.166-2), 2026-09-04 (title currency date shown on page); section timeline states "No changes found for this content after 1/03/2017."; § 1.166-2 Evidence of worthlessness, paragraph (a) General rule. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S39"></a>Where surrounding circumstances indicate a debt is worthless and uncollectible and that legal action to enforce payment would in all probability not result in satisfaction of execution on a judgment, a showing of those facts is sufficient evidence of worthlessness for the section 166 deduction; legal action is not required. _(jurisdiction: United States — federal income tax (26 CFR 1.166-2, Internal Revenue Code section 166), entity_scope: taxpayers claiming a bad debt deduction under section 166, accounting_basis: United States federal income tax, conditions: applies where the surrounding circumstances indicate worthlessness and uncollectibility and that enforcement would in all probability not satisfy execution on a judgment)_ `CG-MCE-033#S39`
  > “Where the surrounding circumstances indicate that a debt is worthless and uncollectible and that legal action to enforce payment would in all probability not result in the satisfaction of execution on a judgment, a showing of these facts will be sufficient evidence of the worthlessness of the debt for purposes of the deduction under section 166.” — [Office of the Federal Register / Internal Revenue Service, Department of the Treasury (eCFR) — 26 CFR 1.166-2 - Evidence of worthlessness](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRc4930337f38ecfd/section-1.166-2), 2026-09-04 (title currency date shown on page); section timeline states "No changes found for this content after 1/03/2017."; § 1.166-2, paragraph (b) Legal action not required. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S40"></a>Bankruptcy is generally (not invariably) an indication that at least part of an unsecured and unpreferred debt is worthless. _(jurisdiction: United States — federal income tax (26 CFR 1.166-2), entity_scope: taxpayers holding an unsecured and unpreferred debt of a bankrupt debtor, accounting_basis: United States federal income tax, conditions: hedged with "generally"; limited to unsecured and unpreferred debt; indicates worthlessness of at least a part, not necessarily the whole)_ `CG-MCE-033#S40`
  > “Bankruptcy is generally an indication of the worthlessness of at least a part of an unsecured and unpreferred debt.” — [Office of the Federal Register / Internal Revenue Service, Department of the Treasury (eCFR) — 26 CFR 1.166-2 - Evidence of worthlessness](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRc4930337f38ecfd/section-1.166-2), 2026-09-04 (title currency date shown on page); section timeline states "No changes found for this content after 1/03/2017."; § 1.166-2, paragraph (c)(1) Bankruptcy — General rule. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

- <a id="s-CG-MCE-033-S41"></a>In bankruptcy cases the year in which a debt becomes worthless varies: in some instances it may become worthless before settlement, and in others only when a settlement in bankruptcy has been reached. _(jurisdiction: United States — federal income tax (26 CFR 1.166-2), entity_scope: taxpayers with debts of debtors in bankruptcy, accounting_basis: United States federal income tax)_ `CG-MCE-033#S41`
  > “In bankruptcy cases a debt may become worthless before settlement in some instances; and in others, only when a settlement in bankruptcy has been reached.” — [Office of the Federal Register / Internal Revenue Service, Department of the Treasury (eCFR) — 26 CFR 1.166-2 - Evidence of worthlessness](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRc4930337f38ecfd/section-1.166-2), 2026-09-04 (title currency date shown on page); section timeline states "No changes found for this content after 1/03/2017."; § 1.166-2, paragraph (c)(2) Year of deduction. Verified 2026-09-09.
  _Flagged for professional review — a bookkeeper or accountant should confirm this applies to your situation._

## The federal income-tax conditions that govern a bad-debt deduction
<a id="need-CG-MCE-033-C7"></a>

- See above: A deduction is allowed for any debt that becomes worthless within the taxable year. ([CG-MCE-033#S34](#s-CG-MCE-033-S34))

- See above: Where the Secretary is satisfied that a debt is recoverable only in part, the Secretary may allow the debt as a deduction in an amount not exceeding the part charged off within the taxable year. ([CG-MCE-033#S35](#s-CG-MCE-033-S35))

- See above: For purposes of the section 166(a) bad-debt deduction, the amount of the deduction for any bad debt is determined from the adjusted basis provided in section 1011 for determining loss from the sale or other disposition of property, not from another measure. ([CG-MCE-033#S36](#s-CG-MCE-033-S36))

- See above: For a taxpayer other than a corporation, the section 166(a) bad-debt deduction does not apply to a nonbusiness debt. ([CG-MCE-033#S37](#s-CG-MCE-033-S37))

- See above: In determining whether a debt is worthless in whole or in part, the district director considers all pertinent evidence, including (but not limited to) the value of any collateral securing the debt and the financial condition of the debtor. ([CG-MCE-033#S38](#s-CG-MCE-033-S38))

- See above: Where surrounding circumstances indicate a debt is worthless and uncollectible and that legal action to enforce payment would in all probability not result in satisfaction of execution on a judgment, a showing of those facts is sufficient evidence of worthlessness for the section 166 deduction; legal action is not required. ([CG-MCE-033#S39](#s-CG-MCE-033-S39))

- See above: Bankruptcy is generally (not invariably) an indication that at least part of an unsecured and unpreferred debt is worthless. ([CG-MCE-033#S40](#s-CG-MCE-033-S40))

- See above: In bankruptcy cases the year in which a debt becomes worthless varies: in some instances it may become worthless before settlement, and in others only when a settlement in bankruptcy has been reached. ([CG-MCE-033#S41](#s-CG-MCE-033-S41))

## What must be on file to support the write-off: what was billed, what collection was attempted, why it is uncollectible, and who approved it
<a id="need-CG-MCE-033-P7"></a>

- <a id="s-CG-MCE-033-S42"></a>AccountingTools advises that after invoices are completed there should be a packet on file containing the sales order, credit authorization, bill of lading and an invoice copy, and that internal audit staff should review a selection of these packets to verify the billing clerk reviewed the supporting paperwork and generated the invoice correctly. _(jurisdiction: Not stated in the document; general guidance from a US-based publisher (AccountingTools, a US CPE provider), not tied to a stated national regime, entity_scope: Companies with accounts receivable arising from customer invoicing and shipping, conditions: stated as advisory good practice ('should'), not a requirement; the article states a company with a specialized receivables system may need additional controls or may not need some listed items)_ `CG-MCE-033#S42`
  > “Audit invoice packets . After invoices are completed, there should be a packet on file that contains the sales order, credit authorization, bill of lading , and an invoice copy. The internal audit staff should review a selection of these packets to verify that the billing clerk properly reviewed all of the supporting paperwork and correctly generated an invoice.” — [AccountingTools, Inc. (Steven Bragg) — Accounts receivable controls](https://www.accountingtools.com/articles/accounts-receivable-controls), 2026-07-09; Accounts receivable controls — key controls list, bullet 'Audit invoice packets'. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S43"></a>In the article's FarmTech example, collections staff review all overdue receivables using collections software to contact customers about their payment situations, the outcomes of those calls are documented in that software, and the staff follow a collections procedure covering the collections actions to be taken. _(jurisdiction: Not stated in the document; general guidance from a US-based publisher (AccountingTools, a US CPE provider), not tied to a stated national regime, entity_scope: Illustrative single company (FarmTech Company); presented as an example, not a requirement, platform: generic 'collections software' — no product named, conditions: hypothetical example introduced by 'As an example of accounts receivable controls')_ `CG-MCE-033#S43`
  > “Overdue accounts analysis . The collections staff reviews all overdue accounts receivable using collections software, using it to contact customers and discuss their payment situations. The outcomes of these calls are documented in the collections software. In addition, the collections staff follows a collections procedure that walks them through the various collections actions to be taken.” — [AccountingTools, Inc. (Steven Bragg) — Accounts receivable controls](https://www.accountingtools.com/articles/accounts-receivable-controls), 2026-07-09; Example of Accounts Receivable Controls — bullet 'Overdue accounts analysis' (FarmTech Company example). Verified 2026-09-09.

- <a id="s-CG-MCE-033-S44"></a>In the article's FarmTech example, when collections staff form the view that an invoice cannot be collected they forward the matter to the collections supervisor with a recommendation to write off the invoice, and those invoices are then forwarded to a collections agency for more aggressive collections work. _(jurisdiction: Not stated in the document; general guidance from a US-based publisher (AccountingTools, a US CPE provider), not tied to a stated national regime, entity_scope: Illustrative single company (FarmTech Company); presented as an example, not a requirement, conditions: hypothetical example introduced by 'As an example of accounts receivable controls'; the text states the staff judgement ('feels that an invoice cannot be collected') and the escalation route; it does not state what evidence supports the judgement, who finally approves the write-off, or any retention requirement)_ `CG-MCE-033#S44`
  > “Write-off approvals . When the collections staff feels that an invoice cannot be collected, they forward the matter to the collections supervisor, with a recommendation to write off the invoice. These invoices are then forwarded to a collections agency for more aggressive collections work.” — [AccountingTools, Inc. (Steven Bragg) — Accounts receivable controls](https://www.accountingtools.com/articles/accounts-receivable-controls), 2026-07-09; Example of Accounts Receivable Controls — bullet 'Write-off approvals' (FarmTech Company example). Verified 2026-09-09.

- <a id="s-CG-MCE-033-S45"></a>AccountingTools presents requiring a manager's formal approval of credit memos, later verified by internal audit staff, as one step in preventing interception of customer cash concealed by credit memos. _(jurisdiction: Not stated in the document; general guidance from a US-based publisher (AccountingTools, a US CPE provider), not tied to a stated national regime, entity_scope: Companies that eliminate receivables through credit memos, conditions: described as 'one step' in prevention, not a complete or mandatory control; the same bullet says approval should not be required for extremely small credit memos, which accounting staff may create without approval)_ `CG-MCE-033#S45`
  > “One step in the prevention of this problem is to require the formal approval of a manager for credit memos, which are then verified at a later date by the internal audit staff.” — [AccountingTools, Inc. (Steven Bragg) — Accounts receivable controls](https://www.accountingtools.com/articles/accounts-receivable-controls), 2026-07-09; Accounts receivable controls — key controls list, bullet 'Authorize credit memos'. Verified 2026-09-09.

- <a id="s-CG-MCE-033-S46"></a>In the worked example, the basis for concluding that the receivable was uncollectible was the customer's notification that it had filed for bankruptcy, its statements that its bank held a lien on all its assets and that liquidation value was less than the bank debt, and the seller's confirmation of that information before deciding to write off the balance. _(jurisdiction: United States, entity_scope: illustrative company (Gem Merchandise Co.) and one bankrupt customer, accounting_basis: accrual basis, allowance method, conditions: an illustrative example, not a stated evidential requirement; no named person or approver of the write-off is identified in the text)_ `CG-MCE-033#S46`
  > “On August 24, that same customer informs Gem Merchandise Co. that it has filed for bankruptcy. The customer states that its bank has a lien on all of its assets. It also states that the liquidation value of those assets is less than the amount it owes the bank, and as a result Gem will receive nothing toward its $1,400 accounts receivable. After confirming this information, Gem concludes that it should remove, or write off , the customer’s account balance of $1,400.” — [AccountingCoach, LLC (Harold Averkamp, CPA, MBA) — Accounts Receivable and Bad Debts Expense: In-Depth Explanation with Examples](https://www.accountingcoach.com/accounts-receivable-and-bad-debts-expense/explanation), Undated standing web explanation ("In-Depth Explanation with Real-World Examples"); page carries "Copyright © 2026 AccountingCoach, LLC"; snapshot retrieved 2026-09-08; Writing Off an Account under the Allowance Method (worked example). Verified 2026-09-09.

- <a id="s-CG-MCE-033-S47"></a>The article states that a bad debt charge-off is easy to prove because it is based on an actual unpaid invoice, unlike the allowance method, which charges an estimate of possible bad debts to expense. _(jurisdiction: United States, entity_scope: Not stated; article is a US-oriented general accounting reference, conditions: describes the basis of the charge-off, not any required documentation or retention rule)_ `CG-MCE-033#S47`
  > “A bad debt charge-off is easy to prove, since it is based on an actual unpaid invoice; this is not the case with the allowance method, where an estimate of possible bad debts is being charged to expense.” — [AccountingTools, Inc. (Steven Bragg) — Direct write off method definition](https://www.accountingtools.com/articles/what-is-the-direct-write-off-method.html), 2026-05-15; Heading: Advantages of the Direct Write-Off Method — bullet 'Provability'. Verified 2026-09-09.

- See above: Retailers must maintain adequate and complete records supporting bad debt deductions or refund claims, showing the items the subdivision then lists. ([CG-MCE-033#S48](#s-CG-MCE-033-S48))

- See above: Among the required records is evidence that the uncollectible portion of gross receipts on which tax was paid has actually been legally charged off as a bad debt for income tax purposes (whether or not the income tax return has yet been filed), or charged off under generally accepted accounting principles where the retailer files no income tax return and its income is not on another person's return. ([CG-MCE-033#S49](#s-CG-MCE-033-S49))

- See above: The filer must explain and substantiate the credits; the Tax Law prohibits the Tax Department from processing credits and refunds unless all substantiating documentation is submitted with the claim. ([CG-MCE-033#S50](#s-CG-MCE-033-S50))

- See above: The claimant must electronically submit a schedule showing how the state and local taxes underlying the bad debt credit were computed. ([CG-MCE-033#S51](#s-CG-MCE-033-S51))

_Partly established. Established: that the documentation must be retained with the write-off (S48). Missing: the record of what was billed; the collection attempts and their outcomes; the basis for concluding the amount is uncollectible; the authorisation of the decision._

## The evidence recognised as supporting a conclusion that a receivable is uncollectible, and the record of who authorised it
<a id="need-CG-MCE-033-C6"></a>

- See above: In determining whether a debt is worthless in whole or in part, the district director considers all pertinent evidence, including (but not limited to) the value of any collateral securing the debt and the financial condition of the debtor. ([CG-MCE-033#S38](#s-CG-MCE-033-S38))

- See above: Where surrounding circumstances indicate a debt is worthless and uncollectible and that legal action to enforce payment would in all probability not result in satisfaction of execution on a judgment, a showing of those facts is sufficient evidence of worthlessness for the section 166 deduction; legal action is not required. ([CG-MCE-033#S39](#s-CG-MCE-033-S39))

- See above: Bankruptcy is generally (not invariably) an indication that at least part of an unsecured and unpreferred debt is worthless. ([CG-MCE-033#S40](#s-CG-MCE-033-S40))

- See above: AccountingTools advises that after invoices are completed there should be a packet on file containing the sales order, credit authorization, bill of lading and an invoice copy, and that internal audit staff should review a selection of these packets to verify the billing clerk reviewed the supporting paperwork and generated the invoice correctly. ([CG-MCE-033#S42](#s-CG-MCE-033-S42))

- See above: In the article's FarmTech example, collections staff review all overdue receivables using collections software to contact customers about their payment situations, the outcomes of those calls are documented in that software, and the staff follow a collections procedure covering the collections actions to be taken. ([CG-MCE-033#S43](#s-CG-MCE-033-S43))

- See above: In the article's FarmTech example, when collections staff form the view that an invoice cannot be collected they forward the matter to the collections supervisor with a recommendation to write off the invoice, and those invoices are then forwarded to a collections agency for more aggressive collections work. ([CG-MCE-033#S44](#s-CG-MCE-033-S44))

- See above: AccountingTools presents requiring a manager's formal approval of credit memos, later verified by internal audit staff, as one step in preventing interception of customer cash concealed by credit memos. ([CG-MCE-033#S45](#s-CG-MCE-033-S45))

- See above: In the worked example, the basis for concluding that the receivable was uncollectible was the customer's notification that it had filed for bankruptcy, its statements that its bank held a lien on all its assets and that liquidation value was less than the bank debt, and the seller's confirmation of that information before deciding to write off the balance. ([CG-MCE-033#S46](#s-CG-MCE-033-S46))

- See above: The article states that a bad debt charge-off is easy to prove because it is based on an actual unpaid invoice, unlike the allowance method, which charges an estimate of possible bad debts to expense. ([CG-MCE-033#S47](#s-CG-MCE-033-S47))

_Partly established. Established: what documentary evidence is recognised as supporting a determination that a receivable is uncollectible (S38, S39). Missing: the record of who authorised the write-off decision._

## Records you are required to keep with the write-off, and what that retention is for
<a id="need-CG-MCE-033-C5"></a>

- See above: Retailers must maintain adequate and complete records supporting bad debt deductions or refund claims, showing the items the subdivision then lists. ([CG-MCE-033#S48](#s-CG-MCE-033-S48))

- See above: Among the required records is evidence that the uncollectible portion of gross receipts on which tax was paid has actually been legally charged off as a bad debt for income tax purposes (whether or not the income tax return has yet been filed), or charged off under generally accepted accounting principles where the retailer files no income tax return and its income is not on another person's return. ([CG-MCE-033#S49](#s-CG-MCE-033-S49))

- See above: The filer must explain and substantiate the credits; the Tax Law prohibits the Tax Department from processing credits and refunds unless all substantiating documentation is submitted with the claim. ([CG-MCE-033#S50](#s-CG-MCE-033-S50))

- See above: The claimant must electronically submit a schedule showing how the state and local taxes underlying the bad debt credit were computed. ([CG-MCE-033#S51](#s-CG-MCE-033-S51))

_Partly established. Established: the purpose that retention serves (S48). Missing: what records supporting a receivable write-off a business is expected to retain._

## If the customer later pays part or all of it
<a id="need-CG-MCE-033-P8"></a>

- See above: Writeoffs are recorded in the period in which the financial asset(s) are deemed uncollectible, and recoveries of financial assets and trade receivables previously written off must be recorded when received. ([CG-MCE-033#S52](#s-CG-MCE-033-S52))

- See above: Where a customer unexpectedly pays after an allowance-method write-off, the reinstatement entry debits that customer's Accounts Receivable and credits Allowance for Doubtful Accounts, and a second entry debits Cash and credits the customer's Accounts Receivable for the amount received. ([CG-MCE-033#S53](#s-CG-MCE-033-S53))

- See above: Where the original write-off was recorded under the direct write-off method as a credit to accounts receivable and a debit to bad debt expense, that original entry is reversed instead. ([CG-MCE-033#S54](#s-CG-MCE-033-S54))

- <a id="s-CG-MCE-033-S55"></a>Where a written-off customer recovers only part of the balance, the portion not repaid remains as bad debt in the illustration ($2,000 of the $5,000 written off). _(jurisdiction: United States, entity_scope: illustrative company (Billie’s Watercraft Warehouse) using the allowance method, accounting_basis: US GAAP, conditions: worked textbook illustration; $3,000 partial recovery of a $5,000 write-off)_ `CG-MCE-033#S55`
  > “The outstanding balance of $2,000 that Craft did not repay will remain as bad debt.” — [OpenStax, Rice University — Principles of Accounting, Volume 1: Financial Accounting — 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches](https://openstax.org/books/principles-financial-accounting/pages/9-2-account-for-uncollectible-accounts-using-the-balance-sheet-and-income-statement-approaches), 2026-04-23; 9.2, section "Income Statement Method for Calculating Bad Debt Expenses", Billie’s Watercraft Warehouse illustration (Customer Robert Craft). Verified 2026-09-09.

- <a id="s-CG-MCE-033-S57"></a>A bad debt recovery is defined as a payment received after the amount has already been designated as uncollectible. _(jurisdiction: United States, entity_scope: businesses holding receivables, conditions: definition only, not a recognition or measurement rule)_ `CG-MCE-033#S57`
  > “A bad debt recovery is a payment received after it has been designated as uncollectible.” — [AccountingTools, Inc. (Steven Bragg) — Bad debt recovery definition](https://www.accountingtools.com/articles/bad-debt-recovery.html), 2026-02-26; Section heading: "What is Bad Debt Recovery?" (first sentence). Verified 2026-09-09.

_Not established from an authoritative source._

_Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference._

## Not yet fully established from an authoritative source

- Establish the criteria recognised for concluding that a customer receivable has become uncollectible, and the steps expected before that conclusion is reached, and what distinguishes that conclusion from a balance that is merely overdue, one that is disputed, and one that is wrong in the ledger. _(partly established; below the required authority class)_
- Establish the recognised methods of accounting for uncollectible customer receivables and the criterion that determines which method a given set of books applies. _(established; below the required authority class)_
- Establish the effect of writing off a receivable on revenue previously recognised, on the receivables balance and on the profit and loss under each recognised method, and the treatment of an amount recovered after a write-off, including how the removal clears the specific invoice and the customer's own account as well as the receivables balance, and how accrual-basis books, where the revenue was already recognised, differ from cash-basis books, where the amount was never recorded as revenue at all. _(partly established; below the required authority class)_
- Establish what records supporting a receivable write-off a business is expected to retain, and the purpose that retention serves. _(partly established)_
- Establish what documentary evidence is recognised as supporting a determination that a receivable is uncollectible, and the record of who authorised the write-off decision. _(partly established)_
- Establish the determination that must be made before anything is written off: what evidence supports a conclusion that the amount will not be collected, and how that conclusion differs from a balance that is simply overdue, disputed, or wrong in the ledger. _(partly established; below the required authority class)_
- Explain the recognised methods of accounting for uncollectible customer receivables and give the criterion that decides which one applies to a particular set of books. _(established; below the required authority class)_
- Explain how the balance is removed under each method, and what absorbs it, so that the specific invoice closes, the customer's account clears and the receivables balance moves correspondingly. _(partly established; below the required authority class)_
- Establish what the write-off does to revenue already recorded — whether the original revenue is reversed or a separate charge is recognised — and why that distinction changes what the profit and loss shows. _(established; below the required authority class)_
- Establish what happens to sales tax that was charged on the invoice and already reported and remitted, and set out how the business determines whether any adjustment is available to it and on what conditions. _(partly established)_
- Distinguish the accrual-basis case, where revenue was already recognised and is now affected, from the cash-basis case, where the amount was never recorded as revenue at all. _(not established; below the required authority class)_
- Identify the documentation that must be on file to support the write-off — the record of what was billed, the collection attempts and their outcomes, the basis for concluding the amount is uncollectible, and the authorisation of the decision — and establish that it must be retained with the write-off. _(partly established)_
- Address recovery: what happens in the books if the customer later pays part or all of an amount that was written off, under each method. _(not established; below the required authority class)_

## Related

- [A customer paid part of an invoice, or sent one payment covering several invoices, or paid too much — how do I record it against their account?](https://uppago.com/resources/a-customer-paid-part-of-an-invoice-or-sent-one-payment-covering-several-invoices)
- [What is an accounts receivable aging report, and how do I read and use it?](https://uppago.com/resources/what-is-an-accounts-receivable-aging-report-and-how-do-i-read-and-use-it)
- [My accounts receivable shows invoices as unpaid that customers already paid — how do I find and fix the wrong balances?](https://uppago.com/resources/my-accounts-receivable-shows-invoices-as-unpaid-that-customers-already-paid-how)
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- [I need to refund a customer or cancel an invoice I already recorded — how do I do it without just deleting the invoice?](https://uppago.com/resources/i-need-to-refund-a-customer-or-cancel-an-invoice-i-already-recorded-how-do-i-do)
- [How do I check that my sales tax payable account matches what I actually owe and filed, and clear it when I pay?](https://uppago.com/resources/how-do-i-check-that-my-sales-tax-payable-account-matches-what-i-actually-owe-and)

_Reference date 2026-09-07. Statements are quoted verbatim from their sources; scope and verification dates are shown on each._