What Are Bad Debts?

Bad debt is the amount money that you owe to some one or a portion of money of account receivables (accounting term) and he cannot pay you back due to any reason for e-g bankruptcy or bad credit position. Bad debts generally occur when you give some one any product or service on credit basis and he promises to pay you at the date of maturity, but when the date comes he defaults. Some Bad debts are recovered after some more time than originally given to the borrower but some bad debts are not recovered in any situation. These days generally businesses are run on credit basis so that is really a problem for the business owner.

In such a situation business men should have some room for bad debts or you can say some allowance for bad debts because 100% of the amount is not usually recovered in every business. Business people always have some allowance for bad debts so that their business should not be affected by bad debts. Bad debts are generally considered as expense and are properly recorded in the accounts and usually written off at the end of each accounting period against allowance for bad debts. Bad debts are some times called doubt full debts which are not expected to be returned.