Question

I am working on a tax problem that requires filling out Form 1120. I am given a bad debt expense of $3900 and "Bad Debt expense equals the addition to an allowance for bad debts. Actula writeoff of uncollectible accounts totaled $2000." what does that statement mean? How much to report as bad debt?

Answer 1

Bad Debt expense equals the addition to an allowance for bad debts - This means the amount of expense reported on the profit and loss statement is the allowance made for bad debts during the year. This is only a book entry, which means there is a probability that this amount will not be collected in the future.

Actual writeoff of uncollectible accounts totaled $2000 - This is the amount that wa actually written off from the books as uncollectible.

Under the specific - charge method, you can claim bad debt only when the amount is either partially or wholly uncollectible. In this case, actual write off is $2,000, that will be amount allowed to be deducted as bad debt expense. Hope this helps.