Nonaccrual Experience Method - NAE

An accounting procedure allowed by the Internal Revenue Code for handling bad debts. This method can only be applied to bad debts for services performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law or the performing arts. The company also must have average annual gross receipts for any three prior tax years of less than $5 million.

A company incurs a bad debt when it can't collect money it is owed. Bad debts that cannot be claimed on the business's tax return using the nonaccrual experience method may be claimed using the specific charge-off method, which is more common.