What does bad debt mean?

What does bad debt mean?

Of course, all readers will understand the word debt very well. But with the word called bad debt, it may have heard some, but I don't know what it is exactly. According to the topic of this article, we will explain about bad debt.

Bad debt or Bad Deb is a condition in which the creditor has tracked the debt owed by the debtor in the end. But still haven't received the refund. It has been cut off from the creditor's account. Simply put, it is that the creditor is helpless in demanding the amount from the debtor until the abolition of the debt itself.

Doubtful accounts or Doubtful Accounts, in addition to bad debts, there are also Doubtful debts are also used to call debtors who expect that they will not be able to pay off debts. not counted as expenses in law Revenue Code

And what you need to know later is Allowance for bad debts or allowance for doubtful accounts Allowance for Doubtful Accounts is money that is provided to prevent customers who are likely to not be able to collect their money back. Such values are used to show deductions from the balance sheet debt account. The purpose is to have the balance become the net worth that can be collected from the debtor.

Bad debt recording methods can be divided into 2 methods:

- When bad debts are actually incurred, they are recorded by writing off directly from the account.

- Record accounting by calculating sales as a percentage is the allowance method

And when the debtor has a bad debt occurs, but the money is returned later, it may be in full or just in part. it will be called bad debt recovered

Bad debts can be recorded back in 2 cases:

- Case 1 is that bad debts are actually written off. The method is to set up a new debtor. After that, there will be a record of receiving money.

- Case 2 is that there is an allowance for bad debts. The method is when setting up a new debtor, reduce the amount of the allowance for bad debts along with it. Then record the receipt of money.

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