Bad Debts


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Bad Debt

Debt from a credit sale that the creditor is unable to collect. Debt becomes bad debt when the creditor has made all reasonable efforts to collect the debt but has been unable to do so. Often, this occurs when the debtor declares bankruptcy or when pursuing collection attempts further will cost more than the debt itself. A company writes off bad debt as an expense, which reduces its taxable income. However, it also deprives the company of cash flow that is ultimately necessary to keep it in business.

Bad Debts

Business accounts receivable that have been included in income in a prior year that are uncollectible, legally binding debts owed to the taxpayer that are totally worthless and uncollectible, and debts the taxpayer must pay that he or she guaranteed in connection with his business or for a profit may be deductible as bad debts.
References in periodicals archive ?
For this reason, the IRS extends the statute of limitation for claiming a credit or refund for bad debts to seven years, rather than the usual three years (Sec.
NBE's bad debts portfolio shrank during fiscal year 2011-2012,amounting to approximately EGP 6.
Central bank officials said the ability of large banks to keep their exposure to bad debts minimal could be credited to the adoption of stringent lending standards.
Aside from bad debts, Barclays described their performance in the first half as "excellent" and said it expected further earnings growth.
Resources spokesman Coun Peter Allen said: "The council takes the issue of bad debt very seriously.
Depending upon whether it's the size of the bad debt or just the number of bad debts incurred during the course of a fiscal year, there will likely be a philosophical adjustment internally that could also affect business.
The new rule is expected to bring to light bad debts transferred to affiliates that do not have to be disclosed under current rules, the paper said.
When the borrower is a related entity controlled by noncorporate relatives, however, the courts have consistently ruled against ordinary loss treatment for such bad debts.
The amount, timing, and type of bad debts (business or nonbusiness) often fall into the grey area of taxation.
Bad debts result when a patient who has been determined to have the financial capacity to pay for healthcare services is unwilling to settle the claim, whereas charity care is provided to a patient with demonstrated inability to pay.