It is because, for almost all companies around the world, bad debts are inevitable. When it comes to bad debts, there are not many controls that companies can implement. Overall, bad debts are bad for any company as they can result in significant losses. It is because bad debts cause a reduction in its accounts receivable balances, which is a Balance Sheet item. However, bad debts also affect the Balance Sheet of the company. That is why it is a part of its Income Statement.

Similarly, if the company does not evaluate the creditworthiness of a customer properly, it may result in bad debts.Д«ad debt is an expense for a company. For example, if a customer goes bankrupt or liquidates, it may not be able to repay its liabilities. Bad debts can happen due to several reasons. Bad debts represent any balance that a company determines is unrecoverable. DefinitionД«ad debt is a concept closely related to accounts receivable. However, for some others, not offering credit sales may not be an option.

Some companies may not offer credit terms at all and transact in cash only. These policies depend on several factors, such as the size of the company, its nature, the industry it operates in, policies of its competitors, etc. Accounts receivables are a group of balances that represents payments owed by third parties, usually customers, to the company.Д®very company has its own credit policies. It is because when a company offers credit sales, it accumulates accounts receivables. Any company that offers credit sales will also have bad debts associated with them.

Bad debt expense formula