What is bad debt?
A receivable you have concluded will never be collected. Writing it off moves the loss onto the P&L, stopping the balance sheet from carrying money that is not coming. In Canada, written-off receivables can also ground a GST/HST adjustment for tax already remitted.
Example
A customer owing $2,400 goes out of business. Once collection is genuinely hopeless, you write the $2,400 off: the receivable comes off the balance sheet and a $2,400 bad-debt expense hits the P&L.
If you had already remitted GST/HST on that invoice, the write-off can also ground an adjustment for the tax portion — the money was never collected, so the tax was never really yours to remit.
Aging shows the candidates; credit notes and adjustments record the decision with a trail. Aging reports guide →
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