Bad debts recovered are those debts that were previously classified as bad and written off but later recovered either in part or in full. These recovered debts should be recorded back into the profit and loss account of the period, or relevant provisions.
The direct write-off method is a process where bad debts are written off as they occur instead of creating a provision for them. While this method is unacceptable for financial reporting purposes under GAAP, it is the only method allowed for tax purposes in the United States.
An accounting method where one amount is deducted from another. It helps to reflect a more accurate financial position by deducting provisions or allowances from gross figures.
An amount set aside out of profits in the accounts of an organization for a known liability, even though the specific amount might not be known, or for the diminution in value of an asset.
The accrual of bad-debt expense based on the projected worthlessness of receivables or prior experience with uncollectible receivables. The reserve method is permitted only for some small banks and thrift institutions with assets of $500 million or less, while other accrual taxpayers must use the specific charge-off method.
The specific charge-off method allows for the deduction of bad debt at the time a specific receivable is determined to be uncollectible, following the exhaustion of all possible collection methods. Accrual basis taxpayers are required to use this method for tax purposes, as they can no longer accrue reserves for bad debts.
