Bad Debt Expense

Bad Debt ExpenseTax Law Term “Bad Debt Expense

Bad debts arising from a trade or business can be deducted for the taxable year when they become worthless or partially worthless. A non-business debt which becomes worthless is considered a loss from the sale or exchange of a capital asset held for not more than one year. A non-business bad debt is reported as a short term capital loss.

Bad debts expense often refers to the loss that a company experiences because it sold goods or provided services and did not require immediate payment. The loss occurs when the customer does not pay the amount owed. In other words, bad debts expense is related to a company’s current asset accounts receivable. AccountingCoach

A bad debt expense is a receivable that is no longer collectible because a customer is unable to fulfill their obligation to pay an outstanding debt due to bankruptcy or other financial problems. Companies that extend credit to their customers report bad debts as an allowance for doubtful accounts in the financial statements, which is also known as a provision for credit losses. Investopedia

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