Commerce - 4CM1 PearsonEdexcel

Bad Debts

Gbogbo ọrọ náà

Every business that sells on credit faces the same uncomfortable question: what happens when a customer cannot, or will not, pay? Bad debts can quietly drain profits, choke cash flow, and even push an otherwise healthy firm into difficulty. Understanding how they arise and how to guard against them is a core commercial skill.

In this lesson you will learn what bad debts are, why they occur, and the tools businesses use to manage credit risk. You will explore credit control procedures, calculate provisions for doubtful debts, and examine how factoring and debt collection agencies help recover outstanding sums.

Ebumnobi

Understand the impact of bad debts on businesses and individuals
Understand ways to reduce bad debts

Akọmọ Ojú-ẹkọ

Selling on credit is the engine of modern commerce. Retailers extend trade credit to keep stock flowing, manufacturers invoice on 30- or 60-day terms, and exporters ship goods weeks before payment arrives. Credit lubricates trade, but it also introduces risk: the risk that a buyer will never settle the bill. When that happens, the unpaid amount becomes a bad debt, and the seller bears the full cost.

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Ayẹwo Ẹkọ

Ekele diri gi maka imecha ihe karịrị na Bad Debts. Ugbu a na ị na-enyochakwa isi echiche na echiche ndị dị mkpa, ọ bụ oge iji nwalee ihe ị ma. Ngwa a na-enye ụdị ajụjụ ọmụmụ dị iche iche emebere iji kwado nghọta gị wee nyere gị aka ịmata otú ị ghọtara ihe ndị a kụziri.

Ị ga-ahụ ngwakọta nke ụdị ajụjụ dị iche iche, gụnyere ajụjụ chọrọ ịhọrọ otu n’ime ọtụtụ azịza, ajụjụ chọrọ mkpirisi azịza, na ajụjụ ede ede. A na-arụpụta ajụjụ ọ bụla nke ọma iji nwalee akụkụ dị iche iche nke ihe ọmụma gị na nkà nke ịtụgharị uche.

Jiri akụkụ a nke nyocha ka ohere iji kụziere ihe ị matara banyere isiokwu ahụ ma chọpụta ebe ọ bụla ị nwere ike ịchọ ọmụmụ ihe ọzọ. Ekwela ka nsogbu ọ bụla ị na-eche ihu mee ka ị daa mba; kama, lee ha anya dị ka ohere maka ịzụlite onwe gị na imeziwanye.

Which of the following best describes a bad debt? A) A debt paid after the due date B) A debt that a business considers irrecoverable C) A debt secured by collateral D) A debt owed to a bank Answer: B
What is the main purpose of a provision for doubtful debts? A) To increase revenue B) To reduce trade receivables to their estimated collectible value C) To eliminate all credit sales D) To calculate interest on overdue invoices Answer: B
A business factors an invoice of $10,000 at 75% of face value. How much does it receive? A) $2,500 B) $7,500 C) $10,000 D) $12,500 Answer: B
Which of the following is NOT a method of credit control? A) Running a credit check on new customers B) Setting a credit limit C) Offering goods at a discount D) Sending monthly statements Answer: C
Trade receivables are $60,000 and the provision for doubtful debts is set at 5%. What is the provision? A) $3,000 B) $5,000 C) $6,000 D) $57,000 Answer: A