When a company is using the direct write-off method, and an account is written off, the journal entry consists of a credit to Accounts Receivable and a debit to Bad Debts Expense.
Write-off is an accounting action that reduces the value of an asset while also debiting a liability account. It is mainly used in its literal sense by companies seeking to account for outstanding loan obligations, unpaid receivables or losses on stored inventory. In general, it can also be broadly understood as something that helps reduce the annual tax bill.
Write-off primarily refers to a business accounting expense that is reported to account for unreceived payments or asset losses.
Three common write-offs include unpaid bank loans, outstanding receivables, and loss of stored inventory.
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