Bad Debt Overview

A bad debt is an amount owed that is written off as a loss. It is 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.

Writing off bad debt reduces your accounts receivable balance and gives you an accurate estimate of the payments your company expects to receive. The write-off incurs an expense for the amount of the unpaid debt.

For more information about writing off bad debt, see the following topics:

Allowance for Bad Debts
Creating a Journal Entry to Write Off Bad Debt
Accepting a Customer Payment to Write Off Bad Debt

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