Bad debts occurs when customer debts due to the business for goods provided or services rendered, become uncollectable. Bad debts are usually a product of customer bankruptcy, company liquidation or where the extra cost of pursuing the debt is greater than the amount of money that the business could posibably collect. When it is determined that a debt is bad, the customer debt is written off in the books of the business. This transaction reduces the value of the accounts receivable in the balance sheet as it increases the expenses of the business in the Income Statement.
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Peter John Baskerville
onto Basic Accounting Concepts August 30, 2011 9:59 AM
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