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:
“A good heart will help you to a bonny face, my lad ... and a bad one will turn the bonniest into something worse than ugly.”
—Emily Brontë (1818–1848)
“A good debt is not as good as no debt.”
—Chinese proverb.