Definition of Bad Debt





What does the term "bad debt" mean? What is meant by the term "bad debt"?

A "bad debt" occurs when it is determined that an accounts receivable amount is uncollectable.

When companies sell goods or services, they will often extend short-term credit to their customer. For instance, the customer will receive the service and will then be invoiced, with an agreement in place that the customer will pay within a certain period of time (usually 30 days).

Definition of Bad Debt - Financial DictionaryAn "accounts receivable" is when a customer owes an amount of money for a service or good that they have already received. The company expects to receive the money for this good or service.

A "bad debt" occurs when an accounts receivable amount is determined to be uncollectable. For instance, let's say that a customer is billed $1,000 for a plumbing job. The customer then goes bankrupt and is unable to pay this amount. The plumbing company would then write this amount off as a "bad debt". A "bad debt" is treated as an expense for the company.




--

Davemanuel.com Articles That Mention Bad Debt:

Proposed Federal Bailout Numbers: Nearly $2 Trillion Dollars and Counting

SEC Might Require Hedge Funds to Disclose Short Positions?

Six Things that Most Wealthy People Understand That you Should Too