Lynda ArtesaniLegal Accountant and Data Migration Specialist at The Proper Trust

Bad Debt Misconception in Cash Basis Accounting

24 Jun 2025 · 1 min

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Under cash-basis accounting, unpaid invoices never become income, so there's no bad debt to write off. Switching accounting methods requires a formal election and a tax professional, not an arbitrary choice.

There can't be bad debt if you're not recognizing the income at the time of the invoice. Yeah, if it's an open invoice, you haven't been paid, it's not how it's booked in. And we see that a lot where people have bad debt expense and it's their cash basis.
The other thing too is it's not a decision that we would ever want to make solo. Like, as people, we want that tax professional involved in this because there's criteria and specifics that go around this. That really makes sense for, for a move like that. And it is an election change. So you—
I was going to say, it's not a flip of the switch. Oh, this year I'm going to do this, this method. You can't just switch it.
Like your mileage. Today I'm doing mileage and next year I'm doing— no. Yes. Make one determination, right? And stick with it.