Bad debts definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. Bad debts can be defined as: Accounts of customers who do not pay what they have promised to pay; an expense of selling on credit; also called uncollectible accounts. Bad debts are receivables from sales in that past that a company no longer believes are collectible. We can deal with bad debts in two ways, using two methods, using the direct write of method to write off bad debts as they are determined to be non-collectible or using the allowance method to make an estimate of bad debts allowing us to write off a bad debts related to the sales that generated them. The allowance method for writing off bad debts is preferred by GAAP but the direct write off method for writing off bad debts can be easier to use.
