BAD DEBTS:

In the modern business days most of the business transactions are either it is in cash or it may be in credit but in large scale business transactions are in credit basis. With many businesses a large proportion if not all of the sales are on a credit basis the business is therefore taking the risk that some of the customers never pay for the goods sold to them in credit. This is a normal business risk and therefore bad debts as they are called are a normal business expense and must be charged as such when calculating the profit or loss for the period.
When a debt is found to be bad the asset as shown by the debtors account is worthless and must accordingly be eliminated as an asset account. The total of the bad debts leaving the reminder to be written off as a bad debt account is later transferred to the profit and loss account.