When should you worry about accounting bad debt?

Accounting Bad Debt - If you plan to only record income only when you receive a payment from your customer you will be using “cash" basis accounting and will not need to worry about accounting bad debt.

However, if your company uses "accrual" basis accounting you record income when the sale is made to your customer. If you are like most businesses, you know that a certain of your accounts will not be collectable. If you set up an allowance for bad debts, your company’s books and records will be more accurate. This is a glossary of "accounting bad debt" accounting terms.

Accounts receivable would be money due from your customers. Your accounts receivable balance equals the dollar amount of sales that you have made to your customers on credit terms but that have not yet been paid. The accounts receivable balance is an asset of your company and is not considered accounting bad debt.

Allowance for bad debts is an allowance you would have (probably monthly) that will be a set amount each month that would be tapped into to offset your accounting bad debt. Bad debt is an account that is not collectable and would be considered accounting bad debt. If you set up an allowance for bad debts, your company’s books and records will be more accurate. Here is a glossary of "accounting bad debt" accounting terms.

Accounts receivable is money due from your customers. Your accounts receivable balance equals the dollar amount of sales that you have made to your customers on credit terms but that have not yet been paid. The accounts receivable balance is an asset of your company.

Allowance for bad debts. Your best guess at how much of your accounts receivable will not be collectable. In other words, your best guess at how much of your accounts receivable will be "bad debts." An "allowance for bad debts" account is kind of like a savings account for accounting bad debt. Your company puts money into it on a periodic basis (usually monthly) as an expense of the company. When you decide that a particular account is not collectable, you tap the allowance for bad debts account to pay for the bad debt. Because you already made the allowance for bad debts, your profit and loss statement will not be out of whack in the particular month that you decide to "write-off" a particular account.

Bad debt is an account that is not collectable.

Bad debt expense is an expense account that reflects the amount of your company’s accounts that are not collectable, that is the amount of your company’s accounts that are "bad debts." A "bad debt expense" account is an expense account of your company.

Bad debt recovery is an account that your company "wrote-off" as not collectable, but that was later paid by the customer. When this happens, you must adjust your accounts.

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