MANAGEMENT

Detailed explanation-1: -Generally, to deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. If you’re a cash method taxpayer (most individuals are), you generally can’t take a bad debt deduction for unpaid salaries, wages, rents, fees, interests, dividends, and similar items.

Detailed explanation-2: -Deductions are not permitted where a trader makes a general bad debt provision. An example of a general bad debt provision would be where a trader does not expect 5% of debtors to pay what is owed so the sum is written off in the P&L account.

Detailed explanation-3: -Debt Expenses That Can Be Deducted Though personal loans are not tax deductible, other types of loans are. Interest paid on mortgages, student loans, and business loans often can be deducted on your annual taxes, effectively reducing your taxable income for the year.

Detailed explanation-4: -A company will debit bad debts expense and credit this allowance account. The allowance for doubtful accounts is a contra-asset account that nets against accounts receivable, which means that it reduces the total value of receivables when both balances are listed on the balance sheet.