A bad debt is the ultimate recognition of loss created when a specific debtor(s) is acknowledged as being unable to pay the debt they owe to the business. This loss, recorded in the Income Statement of a business assesses that at this point in time, the money owed to the business will never be received. Doubtful debts on the other hand are an interim recognition of possible losses caused by irrecoverable (bad) debt that may take place sometime in the future. While bad debts will be linked to specific debtors and written off in the period where the revenue was earned, doubtful debts are an estimate and provision for future losses that is usually based on previous history.
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Scooped by
Peter John Baskerville
onto Basic Accounting Concepts October 22, 2011 4:01 AM
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