Wednesday, 16 September 2009

What is Bad Debt?

Accounts receivable that will likely remain uncollectable and will be written off.

Bad debts appear as an expense on the company's income statement, thus reducing net income.

In general, companies make an estimate of bad debt expenses that might be incurred in the current time period based on past records as part of the process of estimating earnings.

Most companies make a bad debt allowance since it is unlikely that all of their debtors will pay them in full.

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