What is the expected effect of the $3.8 million aged‑receivables write‑off on the company's net income and cash flow?

Effect of the $3.8 million aged‑receivables write‑off

How the mechanics work

1. Income‑statement impact

   • Debit an expense (or credit “Other income”) for $3.8 M.
     
   • Credit the “Allowance for doubtful accounts” (or directly reduce the receivable) for $3.8 M.
     
   • Result: Reduced net income by $3.8 M (pre‑tax). If a corporate tax rate were applied, the after‑tax effect would be slightly less (e.g., at a 25 % tax rate, net‑income would fall by $2.85 M after tax).

2. Cash‑flow statement impact

   • In the “Net income” line of the cash‑flow statement, the $3.8 M expense is shown.
     
   • Under “Adjustments to reconcile net income to cash provided by operating activities,” the $3.8 M is added back (or the allowance increase is subtracted) because it did not involve cash.
     
   • Operating cash flow therefore rises by $3.8 M (or by the after‑tax amount if the company adjusts for tax effects).

3. Balance‑sheet impact

   • Assets: Aged receivable (an asset) is removed, lowering total assets by $3.8 M.
     
   • Equity: Retained earnings (part of equity) fall by the same amount, keeping the accounting equation balanced.

Bottom‑line answer to the question

• Net income: The $3.8 million write‑off will reduce the company’s net income for Q2 2025 by roughly $3.8 million (pre‑tax). The reduction may be a bit smaller after accounting for any tax shield.
• Cash flow: Because the write‑off is a non‑cash expense, the company will add the $3.8 million back in the operating‑cash‑flow section, resulting in no cash‑outflow and an increase in reported operating cash flow of the same amount (again, after‑tax adjustments could slightly modify the figure).

Thus, the write‑off hurts reported profitability but does not drain cash; instead, it improves the cash‑flow picture by being a non‑cash charge that is reversed in the cash‑flow reconciliation.