Bad Debt
Definition
A receivable the business has concluded it will not collect. Recognised either directly as an expense when a specific invoice is abandoned, or through an allowance for doubtful accounts that estimates losses in advance.
Related Terms in Core Accounting
Write-Off
The accounting entry that removes an asset carrying no remaining value from the books, such as an uncollectible invoice or obsolete stock. Distinct from a write-down, which reduces an asset to a lower value without removing it.
Contra Account
An account deliberately carrying the opposite balance to the account it is paired with, so both the gross figure and the reduction stay visible. Accumulated depreciation offsets fixed assets; allowance for doubtful accounts offsets receivables; sales returns offset revenue.
Sub-Ledger
A detailed ledger holding the individual transactions behind a single general-ledger account, such as one line per customer in accounts receivable. The sub-ledger total must agree with its general-ledger control account.
Control Account
A general-ledger account whose balance summarises an entire sub-ledger, for example the receivables control account standing for every customer balance. Comparing the two is a routine check that no detail entry has been lost or double-counted.
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