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I was looking at my company's income statement for last year and noticed the bad debt...

I was looking at my company's income statement for last year and noticed the bad debt expense for $1,500 on the income statement for last year. This amount is probably equal to the amount of money the company tried to collect from customers with overdue balances, right? provide an explanation to help understand the $1,500 of bad debt expense she noticed on the income statement

Business   Accounting   
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Answer #1

Bad Debt

Bad debt simply means unrecoverable debt by the company. When credit sales occure in a company, debtors will be created. That is, customers who owes to the company. Probably, 100% of debtors may not be recoverable. Some of the customers will make default in their debt. Such debts cannot be recovered. This is regarded as Bad debts. Bad debt is debited to profit and loss account as an expense to the company. If this amount or any part of this amount received there after, it is credited as an income. Every company may anticipate a certain percentage of bad debt among their debtors and provide a provision in order to minimize the effect of loss.

In the above case, a sum of $1500 among the debtors of the company was written down as bad debt since they cannot collect an overdue of the same.

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