bad debt

Definition

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.

Use bad debt in a sentence

You should always do your best to collect on any bad debt that you have but know that you will likely write it off.

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To accurately reflect the revenue of a company, bad debt will usually be written off as revenue that will not be able to be collected.

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Our bad debt load is very low for an automotive supplier because we screen our customers very well and because they want repeat orders from us they take extra caution to ensure payment is made and on time.

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