Online Free Accounting

Bad debt is an item of expense shown in the income statement.

You can see the “T” account (Bad debt) in the article (Allowance for doubtful debt):

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A doubtful debt is an amount owing to the business concerning which there is some doubt as to its collectability.

A doubtful debt is one about which there is some cause for concern but which is not yet definitely irrecoverable. Therefore, although it is prudent immediately to recognise the possible expense of not collecting the debt in the income statement, it would also be wise to keep the original debt in the accounts in case the debtor does in fact pay up.

The double entry of doubtful debt is:

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When a sale is made, it might be a sale for cash or it might be a sale on credit. If the sale is on credit terms then the customer will probably take the goods with him or arrange to have them delivered but he will not pay for the goods at that time. Instead, the customer will be given or sent an invoice detailing the goods and their price and the normal payment terms. This will tell the customer when he is expected to pay for those goods.

Under the accruals concept, a sale is included in the ledger accounts at the time that it is made. For a sale on credit, the sale is made at the time that the invoice is sent to the customer and therefore the accounting entries are made at that time as follows:

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