Q: Where is the writing off of bad debts entered on the cash flow statement?
A: Hi Katrien,
That's kind of a trick question. Because bad debts are generally not included in the cash flow statement.
You see, bad debts are not an actual flow of cash. It's just an accounting entry (a loss or expense) but there is no actual cash involved in the transaction.
So it's included as an expense in the income statement but not included as a line item in the cash flow statement.
Even when using the indirect method of the cash flow statement, the first line item is net profit (or loss), which already has the bad debt expense baked in (already included in the income statement to calculate net profit).
Later on in the indirect method we reverse the effect of receivables (accounts receivable or debtors), which already factors in bad debts written off (bad debts reduces receivables - it's money we're recognizing we will actually not be paid).
Best, Michael Celender Founder of Accounting Basics for Students