Dictionary / Bad Debt
What does Bad Debt mean in accounting?
Quick definition
GeneralAn account that cannot be collected. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
A storefront job you cannot collect
Your sign shop invoiced a restaurant $3,450 on April 9 for a storefront install. By September they have bounced two promises, and the landlord says the LLC dissolved. That $3,450 invoice is the bad debt: the accounts receivable you cannot collect. In QuickBooks Online or Xero, issue a credit memo coded to bad debt expense so AR and the aging both drop. Do not delete the invoice, which can wipe the April sale. The write-off is that credit memo; the bad debt is the $3,450 itself.
Late is not the same as uncollectible
In November your print shop invoices a catering client $940 for menus, net 30. On December 20 the invoice sits at 31–60 days, and they reply that they will pay after a holiday event. That is late accounts receivable, not bad debt. Keep sending statements. Coding a credit memo to bad debt now understates AR and books an expense for money you still expect. Revisit the aging after 90 days or if they stop answering; only then is the open balance the uncollectible amount.
Why it matters
You will not post this most months. It shows up after you have invoiced a customer and collection has failed: they closed, vanished, or refused to pay. Bad debt is that uncollectible receivable itself. The write-off is the later step that moves it to expense. Leave it on the aging and accounts receivable still looks like money you can collect, while profit stays high. Delete the invoice instead and you can erase the original sale. A reserve for bad debts is an estimate you keep before you know which invoice died; do not treat every late balance as uncollectible.
Further reading
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What is Bad Debt in bookkeeping?
An account that cannot be collected.
When should I use Bad Debt?
Use Bad Debt when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Bad Debt?
Bad Debt is used for bad debt entries, while Bailment covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.