What is Debt? What are Bad Debts?

Borrowing and Lending

What is DEBT?

Debt is something, usually money, borrowed by one party from another.

Who is … ?:

A debtor – is a company or individual who owes money.

A creditor – is an entity (person or institution) that extends credit by giving another entity permission to borrow money intended to be repaid in the future.

Choose the correct alternative for each sentence and check your answers below:

  1. If you have something, you ……… it. a. owe b. own c. owner
  2. If you give someone your money for a certain period of time, after which it must be paid back, you ……….  a borrow b. lend  c. credit
  3. If you take money and must repay it later, you ….. a. borrow  b. lend  c. steal
  4. An amount of money lent is a …… a. debit  b. debt  c. loan
  5. Someone who has borrowed money is a …… a. creditor  b. debtor  c. owner
  6. Another name for a lender is a/an …… a. creditor  b. debtor  c. owner
  7. The income received by someone who lends money is called…… a. dividend  b. interest  c. interests
  8. The money borrowed is also known as the ….. a. principal  b. principle  c. premium

Key:

  1. b  2.  b  3. a  4. c 5. b  6. a  7. b  8. a

Bad Debt: What Is It?


When a debtor defaults on a payment, the creditor is forced to write off that amount of money as a bad debt. Bad debts are documented as charge-offs when they become uncollectible and are present on a creditor’s books. Any company that offers credit to clients must plan for the possibility of bad debt because there is a chance that the money won’t be returned. The accounts receivable (AR) aging method or the percentage of sales method can be used by these companies to determine how much of their receivables may become uncollectible.

defaults on a payment – don’t pay – nie wywiązywać się z płatności

write off – cancel the record of a bad debt – zrobić odpis

charge-offs – is when a company writes off debt as a loss – odpisać złe długi jako nieściągalne

uncollectible – impossible to be collected – nieściągalne (kwoty)

accounts receivable (AR) aging method – categorizes the receivables based on the length of time an invoice has been due – metoda starzenia się należności

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