Bad Debt for Dummies

Hey there! So, let's talk about "bad debt." When we talk about bad debt, we're referring to money that is owed to someone, like a company or a person, that is unlikely to be paid back. Imagine if you lend a friend some money, but they never give it back to you. That money is like bad debt for you. It's like when you borrow a book from the library and forget to return it, you owe the library money for keeping the book too long. That's kind of like bad debt too.

So, when a company has bad debts, it means that some of the people or businesses who owe them money are probably not going to pay it back. This can be a big problem for the company because they were expecting that money to help pay for things like employees' salaries, or to invest in new things for their business. If the company has a lot of bad debt, it can make it hard for them to keep running their business smoothly.

Sometimes, companies have to write off bad debts because they realize they will never get that money back. It's kind of like saying, "Okay, we're not going to count on getting this money anymore because it's unlikely to happen." So, bad debt is a term that refers to money that is owed but probably won't be paid back, and it can cause some issues for the people or companies that are owed that money. Hope that helps you understand what "bad debt" means! If you have any other questions, feel free to ask!