How is Bad debt accounted in the Balance Sheet?

Question by sonyboy812: How is Bad debt accounted in the Balance Sheet?
My understanding is that bad debt is charged as an expense in the income statement and also remove the amount of bad debt from the asset side of the balance sheet.

if net assets = equity, then if asset is lower due to bad debt, then equity must reduce to balance the balance sheet. But, what is deducted in the equity side?

Thanks

Best answer:

Answer by Sandy
My understanding is that bad debt is charged as an expense in the income statement and also remove the amount of bad debt from the asset side of the balance sheet.
- Your understanding is correct.

what is deducted in the equity side?
When bad debt is charged as an expense in the income statement, that will ultimately go to reduce equity via reduced profit which leads to reduced retained earnings.

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