Bad debt

Bad debt is money owed to a company or person that is unlikely to be paid, or the one owed money decides not to try and collect the money.  This can happen for many reasons, including bankruptcy and fraud.  Accountants try to predict how much bad debt a company will take on every year, and create a bad debt reserve in the company's accounts to accurately show their income.

For example, if Joe owed Steve £5,000 and Joe were to become impossible to contact, the debt would likely not be possible to pursue. This would become a bad debt.

Category:Economics