Percent-of-Receivables Bad Debt Expense (Debit Balance)

Definition: When the Allowance for Doubtful Accounts has an unusual debit balance before adjustment (which occurs when actual write-offs exceed the allowance),…

When the Allowance for Doubtful Accounts has an unusual debit balance before adjustment (which occurs when actual write-offs exceed the allowance), the Bad Debt Expense must cover both the debit balance and bring the allowance to the target level. Bad Debt Expense = Target Allowance + Existing Debit Balance. For example, if the target is $5,000 and the debit balance is $800, Bad Debt Expense = $5,000 + $800 = $5,800.