Bad Debts
Bad Debts
Bad debts (pronunciation: /bæd dɛts/) are amounts owed to a business or individual that are unlikely to be paid. They are typically the result of customers who can no longer pay their bills due to financial difficulties or insolvency.
Etymology
The term "bad debts" originates from the Old English words "bæd" meaning "not good" and "dette" meaning "something owed". It has been used in financial contexts since the late 18th century.
Definition
In accounting, bad debts are considered an expense. When a debt is deemed uncollectable, the business must write it off as a loss in their financial statements. This is done through a process called debt provisioning.
Related Terms
- Accounts Receivable: Money owed to a business by its customers. When these are not paid, they may become bad debts.
- Debt Provisioning: The process of setting aside money to cover bad debts.
- Write-off: The reduction of the value of an asset, in this case, the receivables, due to the unlikelihood of their collection.
- Insolvency: A state in which an individual or corporation can no longer meet financial obligations with lender(s) when their debts come due.
- Financial Statement: Reports created from a company's financial records to reveal their financial performance and condition.
See Also
External links
- Medical encyclopedia article on Bad Debts
- Wikipedia's article - Bad Debts
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