Bad debt refers to loans or outstanding balances owed that are no longer deemed recoverable and must be written off. This expense is a cost of doing business with customers on credit, as there is always some default risk inherent with extending credit.
How to Record Bad debts and Bad Debts Recovered
Step 1: Create the Bad debts and bad debts recovered account.
For that Go to Accounting > Chart of Accounts > New Account.
Fill in all the details:
Enter the account name – Provide the name of new account head in Name
Select account group from the drop down – Select the corresponding group for the new account head in the drop down menu.
Enter the effective date – Record the effective date of account creation.Opening balance- NILL (there is no need for opening balance as it is an income and expense account).
Click on save.