Bad Debts


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Related to Bad Debts: doubtful debts, Provision for Bad Debts

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 ?
The company said that the primary driver of these adverse results was a significant deterioration in accounts receivable performance and a resulting increase in bad debt expense.
The key to a bad debt deduction in the case of unpaid child support is to plan for this contingency at the time of the divorce.
However, a bad debt deduction would not be allowed if, at the time the obligation was entered into, the shareholder-guarantor's payment is construed as a contribution to capital.
NBE's bad debts portfolio shrank during fiscal year 2011-2012,amounting to approximately EGP 6.
Thus, taxpayers may accelerate the deduction for some portion of the bad-debt reserve if entries to the allowance account are accompanied by contemporaneous documentation indicating that the allowance is intended to reflect the partial worthlessness of specifically identifiable business bad debts occurring within the tax year.
The bank took a pounds 696 m hit for bad debts at Barclaycard in the first-half of this year.
It comes a day after Lloyds TSB said the value of money set aside for their bad debts had risen by a fifth to pounds 800million.
A council spokesman said: "The bad debt provision is the amount of money the council sets aside to cover potential bad debts.
Keep in mind that bad debts don't disappear from your credit once they have been paid.
The fourth work group examined the treatment of bad debts, rounding, and sourcing.