The Allowance for doubtful accounts is recorded in the annual financial statements as an Allowance for doubtful accounts.īad Debt is that Debt that was previously receivable but now is irrecoverable from that person who was supposed to pay that Debt. The Debtor's inability to repay the Debt may be due to bankruptcy of an individual or organization, serious financial problems, or the Debtor's unwillingness to repay the Debt. It is only agreed on terms that the borrowing party pays the amount borrowed with interest on time as discussed by both parties. A Debt is an arrangement that gives the borrowing party permission to borrow money under the condition that the amount is to be paid back at a later date, also paid with an interest amount.īad Debt is a claim made by an organization that the amount cannot be collected from the customer because the customer is unable to pay the amount borrowed by the organization. Debt is used by many corporations and individuals as a method of making purchases in a good quantifiable amount which they could not afford under any normal circumstances. Pretty simply isn’t it? Let us know more on bad debt but before that, we will revise the meaning of Debt.ĭebt is the amount of money that is borrowed by one party from another party. The lender (here the company) agrees to lend the money or goods on credit to its debtors (here the outsiders of the company) for an agreed interest which will be charged with the principal debt amount, now if the debtor or the outsider do not repay the company back this debt becomes ‘bad’ thus turning the debt into a bad debt! But, most importantly, do you know what is debt? Debt is the amount of borrowed money being owed. ‘Bad Debt’ is a term which you might have encountered in Accountancy.
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