What is Bad DebtWhat is bad debt? Bad debt is debt that you do not expect to collect, for example loans or accounts receivable that has not been paid and you do not expect your customer or client to ever pay. Collecting Bad Debt Bad debt can either be written off and sold to a collection agency or you can hire a collection agency to collect your bad debt for you. Click here to learn more about using a collection agency to collect your bad debt. Writing Off Bad Debt Bad debt is recorded to an expense account and written off at the end of the year in accrual accounting. There are two ways to write off bad debt. Click here to find out more about how to write off bad debt. If you keep your books on a cash basis, you might keep track of your bad debt for internal purposes (i.e., never do business with this customer again!) but you cannot write off bad debt on your tax return if you keep your books on a cash basis. Return from What is Bad Debt to Bookkeeping Terms
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