Accounts written off refers to specific customer accounts within accounts receivable that a company has concluded are uncollectible, usually following unsuccessful collection attempts, a customer bankruptcy, or a dispute that will never be resolved in the company's favor, and has removed entirely from its general ledger balance.
How a write-off happens under the allowance method
Most companies of any size use the allowance method, which recognizes an estimated bad debts expense in advance of knowing exactly which customer accounts will go bad, building up a balance in the contra asset account Allowance for Doubtful Accounts. When a specific account is later identified as genuinely uncollectible, writing it off simply debits the Allowance account and credits Accounts Receivable for that customer's balance — there is no additional expense recorded at the moment of write-off itself, since the loss was already anticipated and expensed earlier when the allowance was established.
The direct write-off alternative
Some smaller businesses instead use the direct write-off method, which skips the allowance entirely and simply debits Bad Debts Expense and credits Accounts Receivable at the moment an account is confirmed uncollectible. While simpler, this method is not generally accepted for larger companies' financial statements because it fails to match the expense to the period in which the related credit sale actually occurred, often recognizing the loss a full accounting period or more after the sale was made; it remains the required method for US income tax purposes, however.
How accounts are identified as write-off candidates
Companies typically identify write-off candidates through an aging of accounts receivable report, flagging balances that have gone far enough past due — often 90 days or more — with no realistic prospect of collection, sometimes after referral to a collections agency has also failed. Formal write-off decisions usually require sign-off from someone with appropriate authority, since removing a receivable from the books, even against an existing allowance, needs to be properly documented and approved rather than left to informal judgment.
Recovering a previously written-off account
If a customer later unexpectedly pays an account that was already written off, the company reverses the write-off by reinstating the receivable and the allowance, then records the cash collection normally — the recovery does not get recorded as fresh revenue, since no new sale occurred. Tracking the rate at which written-off accounts are later recovered is one of the ways companies refine how conservative or aggressive their allowance estimates should be going forward, and a recovery rate that keeps surprising management on the upside is usually a sign the allowance has been set a little too conservatively relative to actual collection experience.
Credit policy implications
A rising volume of accounts written off relative to total sales is one of the clearest signals that a company's credit-granting standards have loosened, whether deliberately to boost sales volume or inadvertently through weaker underwriting discipline. Credit and collections teams track this figure closely alongside aging trends precisely because it is a lagging confirmation of problems that first showed up as slower collection and a growing overdue balance well before any specific account was formally written off.