Bad Debt Expense:
When a company needs to add to its allowance, it does so by recording a bad-debt expense for the necessary amount. For example, you need an allowance of $300 but currently only have $200 committed to the allowance. You would record a bad-debt expense of $100 on your income statement and increase the allowance by $100, to the new total of $300. Notice that you record the bad-debt expense -- and therefore reduce your profit -- only in anticipation of customers failing to pay their bills. No debts have actually gone bad yet. This follows the accounting principle of conservatism: A company should never overstate its assets, and failing to recognize that certain customer bills won't be paid would overstate the value of accounts receivable, which is an asset.
At some point a debt will actually go bad -- a customer will fail to pay a bill for long enough that the company concludes that the account is uncollectible. When that happens, the company writes off the debt. For example, you have $20,000 in accounts receivable and a $300 allowance, for a net of $19,700. You determine that a customer who owes you $180 is never going to pay. To write off the debt, reduce both accounts receivable and the allowance by the amount of the bad debt -- $180. You now have an accounts receivable balance of $19,820 and an allowance of $120. Net accounts receivable remains the same: $19,700. The write-off doesn't directly affect your company's profitability because you've already "expensed" the bad debt. However, you may need to incur a new bad debt expense to replenish your allowance.