What Is Bad Debt?
Bad debt is a customer receivable amount determined to be uncollectible or impaired under an applicable accounting policy and evidence-based approval process. An overdue invoice is not automatically bad debt.
Collection history, client facts, legal or insolvency information, expected recovery, policy, estimate, professional review, and authority.
Allowance or direct write-off method, amount, tax effect, ledger entry, disclosure, future recovery, reconciliation, and retained records.
Make the definition traceable to authoritative records.
A trustworthy unbilled-revenue, bad-debt, write-off, accrual, deferral, invoice, credit, or refund concept names its object, policy, period, sources, owner, evidence, limitations, and consequence.
Define the object and policy
Name the entity, client, contract, project, obligation, invoice, payment, account, currency, period, accounting or commercial rule, and inclusions or exclusions.
Align authoritative inputs
Use consistent identifiers, versions, dates, currencies, statuses, classifications, adjustments, delivery evidence, collection evidence, and source systems.
Record the calculation or decision
Preserve the policy or authority, actor, time, source objects, assumptions, amount, evidence, communication, and downstream accounting or payment action.
Keep estimates and exceptions visible
Show missing data, disputes, credits, refunds, write-offs, modifications, failed collection, reversals, corrections, timing differences, and the recovery owner.
Questions that prevent a misleading financial conclusion.
Use these prompts when reviewing unbilled revenue, bad debt, write-offs, accruals, deferrals, credits, refunds, period close, or software choices.
DefinitionCan two informed people calculate or classify the state using the same policy, period, and rules?
SourceCan every material contract, delivery, invoice, amount, payment, collection action, adjustment, and status be traced to an authoritative record?
OwnerIs one accountable role responsible for review, correction, communication, approval, professional escalation, and closure?
UseDoes the result support a responsible action without overstating collection, delivery, revenue, cash, or accounting position?
Bad debt, answered.
Why does this definition matter?
Without stable boundaries, teams confuse work, revenue, billing, receivables, credits, and cash movements and may erase evidence through unsupported adjustments.
Can software determine the accounting treatment?
Software can apply selected rules, but accountable owners and qualified professionals must choose policy, estimates, evidence, authority, tax treatment, and reporting.
How should a team apply this page?
Map one real contract, project, invoice, credit, or payment, identify authoritative records and owners, then test a normal path, correction or reversal, and meaningful exception.
Make the definition operational.
Connect it to authoritative records, ownership, evidence, limitations, and recovery.