write-off affect net income and net account receivable

 

 A write-off is an accounting entry made to remove an asset or liability from the balance sheet, typically because it has become worthless or is unlikely to be recovered.

In the case of a write-off of accounts receivable, the impact on net income and net accounts receivable depends on the method used to record the write-off.

If the direct write-off method can used, It can recorded as an expense in the period it occurs, and there is no impact on net accounts receivable.

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The expense reduces net income, which in turn reduces retained earnings and total equity on the balance sheet.

If the allowance method can use, It the first recorded as an estimated bad debt expense, which reduces net income and retained earnings on the balance sheet.

The estimated bad debt expense can then use to adjust the allowance for doubtful accounts, which reduces net accounts receivable on the balance sheet. When the actual bad debt can write off, it can record as a reduction in the allowance for doubtful accounts, with no impact on net income.

The net effect is a reduction in net accounts receivable and a reduction in retained earnings and total equity on the balance sheet.

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