what are bad debts
When a company decides to write off an account payable owed it as bad debt, it creates a bad debt expense. This is the accountant's method for adjusting accounts in the interest of accounting accuracy. The bad debt expense is registered in the accounting system with two simulataneous transactions. 1  A debit transaction is applied to a non-cash expense account, bad debt expense.  A credit transaction for the same amount is applied to a contra asset account, allowance for doubtful accounts.