A bad debt is an amount owed to a business or individual that is written off by the creditor as a loss (and classified as an expense) because the debt cannot be collected and all reasonable efforts to collect it have been exhausted. This usually occurs when the debtor has declared bankruptcy or the cost of pursuing further action in an attempt to collect the debt exceeds the debt itself.
The debt is immediately written off by crediting the debtor's account, eliminating any balance remaining there. The crediting represents a loss to the creditor.
Read more about Bad Debt: Doubtful Debt, Doubtful Debt Reserve, US Accounting Practice, Taxability, Mortgage Bad Debt
Famous quotes containing the words bad and/or debt:
“When politicians and politically minded people pay too much attention to literature, it is a bad sign—a bad sign mostly for literature.... But it is also a bad sign when they don’t want to hear the word mentioned.”
—Italo Calvino (1923–1985)
“Pain and fear and hunger are effects of causes which can be foreseen and known: but sorrow is a debt which someone else makes for us.”
—Freya Stark (1893–1993)