Bad Debts - What are bad and doubtful debts?

Q: What are bad and doubtful debts?

Thus, a bad debt is a specifically-identified account receivable that will not be paid and so should be written off at once, while a doubtful debt is one that may become a bad debt in the future and for which it may be necessary to create an allowance for doubtful accounts.

Answer

Debts that are clearly not going to be paid are called bad debts, and they should be written off immediately. On the other hand, debts that are questionable have the potential to become bad debts in the future, therefore it may be important to set aside money for dubious accounts.

Bad Debts - What are bad and doubtful debts?

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