See bad debt in the Cambridge Business English Dictionary.
What is it?
The term “bad debt” refers to accounts receivable which will likely remain uncollectable and will be written off. Bad debts appear as an expense on the company’s profit and loss statement and reduce the net income. Companies make an estimate of bad debt expenses in advance based on their past records as part of the process when they estimate their earnings for the future. Most companies have bad debt allowances as they assume that not all their debtors will pay their bills in full. In addition, banks made provisions again bad debt and these play a major role in their earnings reports.
Why is it in the news?
As companies are beginning to report their earnings for 2010, looking at the amount of bad debts they recorded is part of the annual report. When the amount of bad debt goes down, companies may have a higher net income even if they did not earn more money. On the other hand, a larger amount of uncollectable bills can adversely affect the bottom line.
How can I use it in class?
Look at these words and expressions from the Bloomberg article and choose the correct of the two definitions.
1 to dent (earnings growth)
A to reduce an amount of money B to increase an amount of money
A those who are members of a group you are a part of
B those who are members of a different group
A expenses B income
4 to bet
A to be certain B to estimate or speculate
5 to sap profits
A to make profits stronger B to make profits weaker
A excellent B not very good
7 to beat the average
A to be better than the average B to be worse than the average
8 to decline to say
A to publicly state B to refuse to say
9 to remain elevated
A to stay high to B fall
10 the economy contracted
A the economy got stronger B the economy got weaker
A every three months B every four months
12 systemically important
A important on its own B important to the system
1 What reasons might a company have for not paying back a loan? Do you know of any specific example?
2 How important is it that banks and other companies make provisions for bad debt? What could happen if they don’t do this?
3 Do you think that bad loans are simply a fact of business or can this be changed? If so, how?
4 Have you had any personal experiences in your job where you had to deal with uncollectible debts? Did your company have any particular process for doing this?
Where can I read about it?
- Erste Shares Fall on Revenue as Hungary, Romania Curb Growth, Bloomberg, February 25th 2011
- HSBC sees full year profits more than double, BBC, February 28th 2011
- Lloyds returns to profit to make £2.21bn, BBC, February 25th 2011
- Ulster Bank reports operating losses of £761m for 2010, BBC, February 24th 2011
1A, 2A, 3B, 4B, 5B, 6A, 7A, 8B, 9A, 10B, 11A, 12B