Bad Debts
Overview
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.
Objectives
- Understand the impact of bad debts on businesses and individuals
- Understand ways to reduce bad debts
Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on Bad Debts. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- 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
Available on the Green Bridge App
Download the Green Bridge CBT app on your phone or computer to access full lesson notes, practice questions, and more.
Available on the Green Bridge App
Download the Green Bridge CBT app on your phone or computer to access full lesson notes, practice questions, and more.
Recommended Books
Practice Mock Questions
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